RESTAURANTSResearch Brief

Sustainable Industry Classification System™ (SICS™) #SV0203

Research Briefing Prepared by the

Sustainability Accounting Standards Board®

December 2014

www.sasb.org© 2014 SASB™

™

I N D U S T RY B R I E F | R E S TA U R A N T S

SASB’s Industry Brief provides evidence for the material sustainability issues in the Restaurants

industry. The brief opens with a summary of the industry, including relevant legislative and

regulatory trends and sustainability risks and opportunities. Following this, evidence for each

material sustainability issue (in the categories of Environment, Social Capital, Human Capital,

Business Model and Innovation, and Leadership and Governance) is presented. SASB’s Industry

Brief can be used to understand the data underlying SASB Sustainability Accounting Standards.

For accounting metrics and disclosure guidance, please see SASB’s Sustainability Accounting

Standards. For information about the legal basis for SASB and SASB’s standards development

process, please see the Conceptual Framework.

SASB identifies the minimum set of sustainability issues likely to be material for companies

within a given industry. However, the final determination of materiality is the onus of the

company.

Related Documents

• Restaurants Sustainability Accounting Standards

• Industry Working Group Participants

• SASB Conceptual Framework

INDUSTRY LEAD

Nashat Moin

CONTRIBUTORS

Andrew Collins

Stephanie Glazer

Anton Gorodniuk

Jerome Lavigne-Delville

Himani Phadke

Arturo Rodriguez

Jean Rogers

Evan Tylenda

Gabriella Vozza

RESTAURANTSResearch Brief

SASB, Sustainability Accounting Standards Board, the SASB logo, SICS, Sustainable Industry Classification System, Accounting for a Sustainable Future, and Materiality Map are trademarks and service marks of the Sustainability Accounting Standards Board.

INTRODUCTION

Restaurants are an integral part of daily life—

providing everything from a quick cup of coffee

to a multiple course meal. For many,

purchasing a drink or a meal-to-go is a regular

occurrence. As such, restaurants, particularly

larger corporations, have the ability to

influence the diet of ordinary people due to the

global scale of their operations and their

significant purchasing power. Additionally,

restaurants provide employment opportunities

for millions around the globe. For example, in

the US, the industry employs 10 percent of the

workforce, or over 13 million people.1

However, many restaurant workers earn low

hourly wages and are part-time. As the average

age of restaurant workers rises, the industry

has a responsibility to ensure living wages and

good working conditions. At the same time,

the industry is responsible for serving food that

is safe to consume and has good nutritional

value. Obesity and other health risk concerns

related to diet continue to drive customer

preferences towards nutrient-rich foods. Also,

environmental and social performance within

the supply chain, particularly such issues as

animal welfare and use of hormones and

antibiotics, may influence purchasing decisions

of restaurant clients. Restaurant companies

able to navigate through the current trends and

satisfy growing demand for healthy foods are

likely to ensure sustainable growth in the long

term.

Management (or mismanagement) of material

sustainability issues, therefore, has the

potential to affect company valuation through

impacts on profits, assets, liabilities, and cost of

capital.

Investors would obtain a more holistic and

comparable view of performance with

restaurant companies reporting metrics on the

material sustainability risks and opportunities

that could affect value in the near- and long-

term in their regulatory filings. This would

include both positive and negative externalities,

and the non-financial forms of capital that the

industry relies on for value creation.

SUSTAINABILITY DISCLOSURE TOPICS

ENVIRONMENT

• Energy & Water Management

• Food & Packaging Waste Management

SOCIAL CAPITAL

• Food Safety

• Nutritional Content

HUMAN CAPITAL

• Fair Labor Practices

LEADERSHIP AND GOVERNANCE

• Supply Chain Management & Food

Sourcing

Specifically, performance on the following

sustainability issues will drive competitiveness

within the Restaurants industry:

• Improving operational efficiency by

reducing energy and water intensity on

premises;

• Reducing environmental impacts of

packaging and food waste while

improving process efficiency;

• Maintaining the highest standards of

food safety;

• Introducing healthy choices to the

menu to satisfy growing customer

demand;

• Ensuring fair labor practices at owned

and franchised locations alike; and

• Requiring high standards of

environmental and social performance

from suppliers.

INDUSTRY SUMMARY

Companies in the Restaurants industry prepare

meals, snacks, and beverages for customers

immediately for on- and off-premises

consumption.I The Restaurants industry

characterizes a classic mature market with

intense competition among restaurants of all

sizes within and across subcategories, as well as

with home-prepared options.2

I Industry composition is based on the mapping of the Sustainable Industry Classification System (SICSTM) to the

Broadly divided into three subcategories, the

Restaurants industry includes limited-service

eating places; casual, family full-service eating

places; and upscale, family full-service eating

places. Limited-service items may be consumed

on premises, taken out, or delivered. Fast food

restaurants account for almost 70 percent of

the limited-service restaurants. Major players in

this category include McDonald’s Corporation,

Yum! Brands Inc., Doctors Associates Inc., and

Wendy’s International, Inc.3 Casual full-service

places are lower- to mid-priced restaurants that

primarily serve patrons who order and are

served while seated, and who pay after eating.

Major players in this category include Darden

Restaurants Inc., DineEquity Inc., and Bloomin’

Brands Inc.4 Limited-service restaurants provide

services to customers who order and pay before

eating. Upscale full-service restaurants are

distinguished from limited-service restaurants

by food quality and higher prices.

The global Restaurants industry is valued at

approximately $210 billion. Fast food

restaurants account for the biggest segment of

the industry at 37 percent of revenue, followed

by casual full-service restaurants with 28

percent.5 Companies traded on U.S. exchanges

and Over-the-Counter (OTC) generate almost

$130 billion from the industry, with about $95

billion coming from the limited-service and $35

billion from the full-service restaurants. In

2013, the median operating margin for U.S.-

traded companies was 7.8 percent, while the

Bloomberg Industry Classification System (BICS). A list of representative companies appears in Appendix I.

I N D U S T R Y B R I E F | R E S T A U R A N T S | 2

median net income margin was 4.5 percent.

Limited-service restaurants had the median

operating margin of 9.9 percent and median

net income margin of 4.1 percent, compared to

6.8 percent and 5 percent respectively for full-

service restaurants. The margins have recovered

since the financial crisis when they were

suppressed to around 2 to 5 percent.6

Market demand is driven primarily by

demographics, consumer tastes, and personal

income. 7 Americans currently spend 47 percent

of their food dollars in restaurants, up from 25

percent in 1955.8 While the Restaurants

industry has experienced a decline in demand

during the last recession, as the employment

rate improves, Americans are increasingly

returning to restaurants, although low-wage

growth hinders the rate of customer increase.9

Publicly held restaurants are either owned and

operated, or franchised through franchise

arrangements, developmental licenses, and

foreign-affiliated license agreements.

Companies can earn revenues from sales at

company-owned store and franchise fees.

While company-owned stores are more

vulnerable to the economic environment,

franchising makes quality control more

difficult.10 Revenue growth is driven by either

same-store sales growth or opening new

units.11 Limited-service restaurants rely on

efficient operations and high-volume sales.

II Restaurant Performance Index (RPI) is a monthly composite index by the National Restaurant Association that tracks the health of and the outlook for the US Restaurants industry. 100

Meanwhile, full-service restaurants are more

dependent on fluctuations in the health of the

economy.12, 13 The Restaurant Performance

IndexII remained above 100 for eight

consecutive months in October 2013, largely

due to same-store sales.14

Food and beverage purchases, as well as

wages, are the two largest cost items for a

typical full-service or limited-service restaurant.

Combined, these expenses account for 55 to

60 percent of revenue. Rent is increasing as a

percentage of operating expenses, while

operators prefer to rent facilities rather than to

own them.15, 16

The industry is characterized by high, increasing

levels of competition. Companies compete on

prices, food quality and variety, location, and

service. Concentration in the industry varies by

segment—fast food restaurants experience a

higher level of concentration than their full-

service peers. According to IBISWorld, the top

four fast food restaurants (McDonald’s,

Subway, Yum! Brands, and Wendy’s) account

for about 42.7 percent of market share. Most

of the industry’s recent growth and increased

concentration can be attributed to the

popularity of the franchising model, which

helps large chains expand their market share

with relatively low capital spending. Full-service

restaurants experience lower level of

concentration, with the four largest companies

indicates a steady state, values below 100 represent a period of contraction, and values above 100 represent a period of expansion.

I N D U S T R Y B R I E F | R E S T A U R A N T S | 3

capturing only 26.8 percent of the market. The

ability to borrow and lease premises and

equipment reduces the initial capital

requirement, making barriers to entry relatively

low. New companies may also enter the

industry by signing a franchising agreement

that also lowers initial costs.17, 18

American companies are expanding

internationally as they are facing saturated

markets at home.19 Europe and the BRIC (Brazil,

Russia, India, and China) countries are

emerging markets for American companies.

Yum! Brands currently runs 15,000 of its

35,000 locations abroad, and approximately 56

percent of McDonald’s restaurants are outside

of the US.20

Healthier, lower-calorie options have been a

key source of growth for restaurants in the past

10 years, resulting in improved same-store sales

growth, increased customer traffic, and gains in

overall servings.21 Limited-service restaurants,

particularly its quick-service subsect catering to

the demand for more affordable and healthy

options, have seen relatively good

performance. Balancing the desire for quality

and value, fast-and-casual and quick-service

restaurants, such as the bakery cafe, is a

relatively underdeveloped and growing market

with consumer demand outpacing the rate of

unit expansion.22, 23 Fast food and limited-

service places face rising food costs, worker

unrest, and pressure to serve healthier food. As

III This section does not purport to contain a comprehensive review of all regulations related to this industry, but is

a result, some chains are focusing on overseas

for growth opportunities in the long term.24, 25

Restaurant operators face an evolving market

due to changes in customer preferences and

regulations around health and environmental

issues.

LEGISLATIVE AND REGULATORY TRENDS IN THE RESTAURANTS INDUSTRY

The US Restaurants industry is a heavily

regulated segment of the economy with

policies and licenses at the local, state, and

federal levels. Restaurants are required to

observe regulations relating to the preparation

and sale of food, building and zoning

requirements, worker rights, and more. The

following section provides a brief summary of

key regulations and legislative efforts related to

this industry.III

Although there is no current legislation on food

waste in the US, with 30 to 40 percent of food

going to waste, the U.S. Department of

Agriculture (USDA) and the U.S. Environmental

Protection Agency (EPA) launched the joint

Food Waste Challenge in 2013 to minimize

food waste. The challenge is the first

nationwide initiative designed to address

hunger, increase efficiency, and limit climate

intended to highlight some ways in which regulatory trends are impacting the industry.

I N D U S T R Y B R I E F | R E S T A U R A N T S | 4

change associated with food waste.26

Packaging is also a prominent source of waste

in the Restaurants industry, and is the source of

such local-scale initiatives as the ban of

polystyrene use in New York City.27

As the enforcer of public safety regulations in

relation to food, the Food and Drug

Administration (FDA) is the most prominent

regulatory body for the Restaurants industry.

Due to increased awareness of obesity and

nutrition-related illness, there has been

increased market and regulatory pressure for

healthier options in restaurants, including

calorie count, less trans fat, and fewer sugar-

sweetened beverages.

Section 4205 of the Patient Protection and

Affordable Care Act (PPACA) established

requirements for nutrition labeling of standard

menu items in chain restaurants. It also made

similar retail food establishments help

consumers make informed decisions. Chain

restaurants with 20 or more locations have to

list calorie content information for standard

menu items on restaurant menus and menu

boards. Other nutrient information, such as

total calories, fat, saturated fat, cholesterol,

sodium, total carbohydrates, sugars, fiber and

total protein, have to be made available in

writing upon request.28

IV By definition, average hours worked by multiple workers can be added to determine the number of full-time equivalent workers in a company. For example, two workers who

In 2005, New York City became the first

jurisdiction to ban artificial trans fats in

restaurants, and is an example of how local and

federal policies impact one another. In 2003,

the FDA ruled that packaged foods’ nutrition

labels must list trans fat content. Food

companies have since begun to slowly eliminate

it from their products. The FDA is now

considering a total ban.29

On March 23, 2010, President Obama signed

PPACA into law. The PPACA requires any

company with at least 50 “full-time

equivalent”IV workers to offer health insurance.

One of the provisions of the law also changes

the legal definition of full-time worker as

anyone averaging at least 30 hours per week.30

Such requirements significantly impact labor

and operating costs for franchise owners of

restaurants, as employers would be expected to

internalize the cost of additional employee

benefits.31 Both limited-service and full-service

restaurants said that complying with healthcare

reform would be a significant challenge.32, 33

Worker rights are rising to the forefront of

policy agendas of state governments, as these

governments reexamine company

responsibilities regarding wage and sick leave.34

The US Department of Labor (DOL) is

responsible for wage and hour standards,

unemployment insurance benefits, and

reemployment services regulation that apply to

average 15 hours per week would be considered one full-time equivalent worker.

I N D U S T R Y B R I E F | R E S T A U R A N T S | 5

all restaurants and the workers they hire. The

Occupational Safety and Health Administration

(OSHA) was created under the Occupational

Safety and Health Act of 1970 by the

Department of Labor (DOL) to assure safe and

healthful working conditions.35 The Fair Labor

Standards Act (FLSA) establishes minimum

wage, overtime pay, recordkeeping, and youth

employment standards affecting employees in

the private sector and government.36 In 2014,

President Obama called for a raise in federal

minimum wage from $7.25 an hour to

$10.10.37 The FLSA has a direct impact on the

profit margins and operational sustainability of

restaurants.

Internationally, restaurant companies and

franchisees are subject to local laws and

regulations concerning a variety of issues

including franchising, zoning, health, safety,

sanitation, and building and fire code.

Restaurant locations outside the U.S. may be

subject to tariffs on imported commodities and

equipment, and laws regulating foreign

investment.

SUSTAINABILITY-RELATED RISKS AND OPPORTUNITIES

Industry drivers and recent regulations suggest

that traditional value drivers will continue to

impact financial performance. However,

intangible assets such as social, human, and

environmental capitals, company leadership

and governance, and the company’s ability to

innovate to address these issues are likely to

increasingly contribute to financial and business

value.

Sustainability issues topped the list in the

National Restaurant Association’s What’s Hot in

2014 survey of 1,283 professional chefs. Local

sourcing of meat, seafood, and vegetables

ranked high on the list of 258 items. Also,

environmental sustainability, nutritional value,

and reducing food waste by using all parts of

animals and plants, were all among the top 10

issues.38 The survey results highlight increased

consumer awareness about healthy eating,

local sourcing, and environmental

sustainability—all key sustainability issues faced

by the industry.

Broad industry trends and characteristics are

driving the importance of sustainability

performance in the Restaurants industry:

• Social externalities associated with

food safety, as well as trends toward healthy food options: The

global nature of the industry and

franchising business model make the

issue of food safety in the value chain

difficult to manage. Rising awareness

of the calorie content and nutritional

value of food is slowly shifting

consumer demand and public policy.

• Reliance on human capital for value

creation: The Restaurants industry

employs millions of workers who are

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mostly paid hourly and receive

minimum wages. Managing of fair

labor issues is important due to the

industry’s customer-facing nature.

• Reducing environmental and social

impacts of suppliers, as well as responsible food sourcing:

Consumer trends toward reducing

food’s total environmental footprint

require managing food waste and

environmental impacts along the food

supply chain. Companies have to

navigate the myriad of regulations

around the use of GMO, antibiotics,

hormones, and pesticides in food

production.

As described above, the regulatory and

legislative environment surrounding the

Restaurants industry emphasizes the

importance of sustainability management and

performance. Specifically, recent trends suggest

a regulatory emphasis on environmental and

customer protection, which will serve to align

the interests of society with those of investors.

The following section provides a brief

description of each sustainability issue that is

likely to have material implications for

companies in the Restaurants industry. This

includes an explanation of how the issue could

impact valuation, and evidence of actual

financial impact. Further information on the

nature of the value impact, based on SASB’s

research and analysis, is provided in Appendix

IIA and IIB. Appendix IIA also provides a

summary of the evidence of investor interest in

the issues. This is based on a systematic analysis

of companies’ 10-K and 20-F filings,

shareholder resolutions, and other public

documents. It is also based on the results of

consultation with experts participating in an

industry-working group convened by SASB.

A summary of the recommended disclosure

framework and accounting metrics appears in

Appendix III. The complete SASB standards for

the industry, including technical protocols, can

be downloaded from www.sasb.org. Finally,

Appendix IV provides an analysis of the quality

of current disclosure on these issues in SEC

filings by the leading companies in the industry.

ENVIRONMENT

The environmental dimension of sustainability

includes corporate impacts on the environment.

This could be through the use of natural

resources as inputs to the factors of production

(e.g., water, minerals, ecosystems, and

biodiversity) or environmental externalities and

harmful releases in the environment, such as air

and water pollution, waste disposal, and GHG

emissions.

In the Restaurants industry, environmental

issues focus on the energy intensity of

operations, water management, and waste

generated.

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Energy & Water Management

The Restaurants industry relies on energy and

water for value creation. Particularly, fast food

restaurants tend to have long hours of

operation, and have larger portions of

operating expenditures allocated to utilities.

Companies in the industry have great

opportunities for long-term cost savings

enabled by technology improvements and other

efficiencies. Purchased electricity represents a

major share of energy sources used in the

Restaurants industry.

Fossil fuel-based energy production and

consumption contribute to significant

environmental impacts, including climate

change and pollution, which have the potential

to indirectly yet materially impact the results of

operation of restaurant operators. Sustainability

factors, such as GHG emissions pricing,

incentives for energy efficiency and renewable

energy, and risks associated with nuclear

energy and its increasingly limited license to

operate, are leading to an increase in the cost

of conventional energy sources while making

alternative sources cost-competitive. Therefore,

it is becoming increasingly material for

companies in energy-intensive industries to

manage overall energy efficiency, reliance on

different types of energy and associated risks,

and access to alternative energy sources. Water

is becoming a scarce resource around the

world, due to increasing consumption from

population growth and rapid urbanization, and

reduced supplies due to climate change.

Furthermore, water pollution in developing

countries makes available water supplies

unusable or expensive to treat. Major uses of

water in restaurants are related to food and

beverage preparation, ice making, dishwashing,

and sanitation. Limited-service eateries use

relatively less water than full-service restaurants

due of the use of disposable food containers

and preprocessed ingredients.

Depending on the location, water scarcity can

pose a risk to operations. As a result, it is a

growing concern for the Restaurants industry.

This is likely to give rise to regulations that will

impose further costs on restaurant companies

as they rely on high-quality water for their

growing operations. Water scarcity can result in

higher costs, supply disruption, and social

tensions, which companies across different

industries, particularly water-intensive ones, will

need to contend with.39

Water and energy efficiency measures in

company-owned stores can directly impact the

bottom line. However, companies that can also

influence energy and water management at

their franchise locations will have a more

significant effect on reducing indirect

environmental impact. Reducing the risk of

franchises being impacted by future climate

change regulations and water constraints will

ensure sustained growth.

Company performance in this area can be

analyzed in a cost-beneficial way internally and

externally through the following direct or

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indirect performance metrics (see Appendix III

for metrics with their full detail):

• Total energy consumed, percentage

grid electricity, percentage renewable;

and

• Total water withdrawn, percentage in

regions with High or Extremely High

Baseline Water Stress.

Evidence

The U.S. EPA estimates that restaurants use

about 2.5 times more energy per square foot

than other commercial buildings.40 The U.S.

Energy Information Administration estimates

that in 2003, buildings (other than malls) that

provide food services as a principal activity

consumed 217 trillion Btu (equivalent of 63

billion Kilowatt hour (kWh)) of site electricity,

or more than seven percent of the total

electricity consumption.V Total electricity

expenditures amounted to almost $5.2 billion,

7.5 percent of the electricity expenditures of all

non-mall buildings in 2003.41 The most

electricity-intensive activities were food

refrigeration and lighting with 12.3 kWh per

sq. ft. and 7.5 kWh per sq. ft. respectively.42 In

terms of the total energy use, the EPA’s

ENERGY STAR national median energy intensity

estimates show that fast food restaurants

consume 1015.3 kBtu of source energy per sq.

ft.VI Full-service restaurants consume much less

energy at 432 kBtu per sq. ft.43 According to a

V Site electricity is the amount of electricity delivered to commercial buildings.

2002 estimate, restaurants in the U.S. spent an

average of $2.90 per sq. ft. on electricity and

$0.85 per sq. ft. on natural gas each year.44

Therefore, energy management affects

traditional drivers, like operating costs.

Restaurants are provided incentives to manage

their energy use. The Energy Efficient

Commercial Buildings Deduction, passed as

part of the 2005 Energy Reduction Act,

incentivizes restaurants to invest in making

their businesses energy efficient. The tax

deduction allows up to $1.80 per square foot

based on the efficiency levels of lighting,

HVAC, and building materials used in

construction.45

The use of energy-efficient appliances can be a

source of significant savings, and investments

can pay off in a relatively short amount of time.

KFC, a subsidiary of Yum! Brands, replaced

over 5,000 ovens with ENERGY STAR Blodgett

ovens that saved franchise owners

approximately $600 per oven annually,

resulting in total savings of approximately

$3 million per year.46 This illustrates how

energy efficiency improvements, especially

when implemented in a large scale at company-

operated stores, can generate significant

savings for restaurant companies.

The issue of energy efficiency has received

attention from major players, and many have

set energy efficiency goals. In 2008, Starbucks

VI Includes site energy and transmission, delivery, and production losses.

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set a goal of reducing electricity use by 25

percent in company-owned stores by 2015.47

Similarly, Darden Restaurant and Yum! Brands,

both of which comprises of multiple restaurants

brands, set goals of reducing per restaurant

energy use by 15 percent by 2015 based on the

2009 levels.48, 49

Restaurant operators are materially impacted

not only by the intensity of energy use, but also

by their energy mix. Adding renewable energy

to the mix reduces risks of price increases due

to carbon pricing. In 2013, Starbucks was

ranked at ninth in EPA’s Green Power

Partnership Top Partner Rankings.

Organizations can meet EPA Partnership

requirements by using any combination of

Renewable Energy Certificates, onsite

generation, and utility green power products.

Starbucks used 592,462 Megawatt hour (MWh)

of green power, which constituted 70 percent

of their annual electricity use.50

Water used in hospitality establishments,

including restaurants, account for

approximately 15 percent of the total water use

in commercial and institutional facilities in the

U.S.51 The National Restaurant Association

(NRA) estimates that limited-service restaurants

consume 500 to 1,500 gallons of water a day,

while full-service restaurants consume up to

5,000.52 According to the EPA, approximately

52 percent of the water use in restaurants is

associated with equipment and processes that

take place in the kitchen.53 Increasing water

efficiency in restaurants impacts the bottom

line in a number of ways, including reduced

cost of water and wastewater services, as well

as reduced energy costs.54 Industry estimates

suggest that implementing water-efficient

practices in commercial facilities can decrease

energy and water use by 10 and 15 percent

and operating costs by an average of 11

percent.55

Similar to energy efficiency investments, water

efficiency projects can have relatively short

payback periods. A Boston University cafeteria

reduced its water use by 63 percent by

installing high-efficiency pre-rinse spray valves.

The EPA estimates that the payback period for

high-efficiency pre-rinse spray valves could be

as short as one month.56 These benefits are

becoming evident to restaurateurs. According

to NRA estimates, between 29 percent and 50

percent of operators installed water-saving

equipment or fixtures in 2012. Another 60

percent of fine-dining operators, 55 percent of

casual-dining operators, and about half of

operators in other segments planned upgrades

for 2013.57

Uninterrupted access to fresh water is

becoming increasingly relevant for companies

with operations in water-stressed regions. In its

2013 CDP Water Disclosure Project, Darden

Restaurants states that 25 percent of their

operations are located in regions at risk,

including Colorado (Pacific Ocean),

Sacramento, San Joaquin, and Colorado

(Texas).58 McDonald’s estimates that 25 percent

of its operations is in areas where potential

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water scarcity is expected by 2025.59 Restaurant

operators strive to limit their risk exposure by

reducing amounts of water use. In 2005, Yum!

Brands set a target of 10 percent reduction in

water consumption in company-owned

restaurants by 2015. In order to achieve their

goals, the company implemented several

projects, including installing high-efficiency

building fixtures, irrigation systems, and

equipment. The company reported achieving 20

percent of their goal by the end of 2013.60 In

contrast, Darden Restaurants reports reducing

per restaurant water usage by 17 percent in

2011 from 2009 base year. This was in excess

of their 10 percent target reduction by 2015.61

Value Impact

Companies in the industry are large purchasers

of energy, given their hours of operation and

their extended locations. Fluctuations in

electricity and natural gas prices affect

operating margins and profitability, and are

hard to pass onto consumers to completely

offset cost increases. Companies who are able

to properly manage this issue by investing in

new technologies that reduce overall energy

consumption, improve energy efficiency, or

source from renewables, will be better able to

protect themselves from energy price volatility

while reducing operating expenses.

While the cost of energy consumption is

already captured in financial results, overall

energy consumption levels provide a sense of

firms’ exposure to future increases in energy

price. This possible increase results from

internalizing the growing environmental and

social impact of energy consumption. Decisions

about onsite versus sourced electricity, and

diversification of energy sources, can also

influence the volatility and price of energy

costs. This has impact on the company’s long-

term profitability and cost of capital. The

percentage of energy from renewables

indicates a firm’s ability to mitigate its

environmental footprint and its exposure to

energy cost increases driven by sustainability

impact.

Companies in the industry that are able to

reduce water consumption are likely to see

positive impacts on their operating expenses.

This is of particular importance for companies

in which significant revenues are generated in

regions where water is becoming scarce, and

where the price of natural resources is expected

to increase in the future. Total water

withdrawn provides absolute and comparative

measures of water efficiency. The percentage

of water recycled indicates a company’s ability

to mitigate its exposure to water cost increases.

The percentage of water withdrawn in water-

stressed regions indicates a company’s

exposure to operational disruptions in the short

term, with impact on revenue and operational

risks in the long term. In turn, this impacts the

cost of capital.

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Food & Packaging Waste Management

Restaurants produce waste in two main

forms—food and packaging. Food waste

includes ingredients, waste created during

cooking (such as oil), and waste of the final

product. Packaging waste includes packaging

received from suppliers and packaging disposed

by consumers in the restaurant areas. Food

waste results in loss of resources, such as

water, energy, land, labor, and capital, and

produces greenhouse gas emissions as a result

of decomposition. Moreover, food ingredient

deliveries to restaurants are a significant source

of packaging waste. In addition, limited-service

restaurants make heavy use of disposal

tableware for serving customers.

Companies that are able to reduce waste

through various methods, including food

recovery, diverting waste from landfills, and

packaging reclamation programs, can reduce

waste-handling costs and improve operational

efficiency. Pressure to divert waste from landfill

may result in higher disposal costs. Since food

packaging for takeout is disposed offsite,

restaurants are not able to divert takeout

packaging from landfills. However, restaurants

can be proactive about sourcing recycled and

recyclable or compostable material.

Company performance in this area can be

analyzed in a cost-beneficial way internally and

externally through the following direct or

indirect performance metrics (see Appendix III

for metrics with their full detail):

• Amount of waste, percentage food

waste, percentage diverted; and • Total weight of packaging, percentage

made from recycled or renewable

materials, percentage that is recyclable

or compostable.

Evidence

Each year 1.3 billion metric tons—or one third

of the food produced in the world—is lost or

wasted.62 According to a 2012 Natural

Resources Defense Council report, 40 percent

of food in the U.S. is wasted or lost.63 North

America and Oceania have the greatest overall

and per capita consumer food loss and waste at

nearly 300 kg/year and 115 kg/year. Overall

food loss is the aggregate of the loss at various

stages of lifecycle of food: production, handling

and storage, processing, distribution and retail,

and consumption. In North America, most of

the inefficiency is at the consumption stage.64

The USDA estimates that households and food

service operations lost 19 percent of total U.S.

retail-level food supply. In restaurants alone,

four to 10 percent of food purchased is lost

before it reaches consumers.65 Food that is

served often goes uneaten, adding to the food

waste generated at restaurants.

Food waste in landfills release methane, a

potent greenhouse gas, as a result of anaerobic

digestion. Most food waste ends up in landfills,

making it a significant contributor to climate

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change. To address this issue, Massachusetts

has implemented a commercial food waste ban

effective July 1, 2014. According to the ban,

any entity that disposes of at least one ton of

organic waste per week must either donate or

repurpose the useable food. Unusable food will

be sent to a composting facility or be used to

make animal feed.66 According to Kenneth L.

Kimmell, commissioner of Massachusetts'

Department of Environmental Protection, the

program is expected to more than quadruple

the amount of food waste diverted, from

100,000 to 450,000 tons annually.67

Studies show direct correlation between

portion sizes and food intake, as well as

amount of food waste. On average, 17 percent

of food is left uneaten by diners at restaurants

as a result of large portions served. Therefore,

reducing servings at restaurant would not only

minimize costs of ingredients, but also reduce

the costs associated with food waste disposal.

Keeping unnecessarily large amounts of food

inventory is another operational inefficiency

that results in increasing food waste. Some

restaurants may have excessive menus and try

to store all the ingredients for each item on a

menu. Moreover, some company policies may

require fast food restaurants to dispose of food

while it still in a good quality. For example,

McDonald’s requires fries to be thrown out

after seven minutes. Approximately, one-tenth

of fast food waste occurs as a result of such

type of policies.68

At McDonald’s, 67 percent of waste by weight

occurs back-of-counter and approximately 74

percent of it is comprised of used cooking oil,

corrugated cardboard, and food waste.

Therefore, the company has an opportunity to

manage the amount of waste that is recycled.

The average restaurant generates 2,214 pounds

of waste per week, which includes 667 pounds

of corrugated cardboard, 568 pounds of

organic food waste, 333 pounds of paper, 233

pounds of plastics, and 200 pounds of cooking

oil. In 2013, 90 percent of the 34,113 surveyed

McDonald’s restaurants were recycling used

cooking oil and 77 percent were recycling

corrugated cardboard.69

Food cost is a significant part of the total cost

of sales for the industry. Therefore, food waste

reduction is likely to have a positive effect on operational efficiency and financial results. In

its 2013 Equity Research Report on U.S.

restaurants, Barclays cites improvements in the

waste control system of Brinker International,

Inc. as a basis for reducing their COGS to Co-

Op Sales ratio.70 In their financial analysis of

Cheesecake Factory Inc., analysts from Baird

Equity Research, Barclays, Piper Jaffray, and

Lazard Capital Markets all recognize the

positive impacts of efforts around

waste/inventory control on long-term margin

improvement for the company, which further

plays out in upside revisions of earnings

estimates. 71, 72, 73, 74

Several restaurant companies make disclosures

around this issue in their SEC filings. In its

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FY2012 Form 10-K, Cracker Barrel reports that

“reduction in food waste from 2012 to 2013

accounted for a 0.2 percent decrease in

restaurant cost of goods sold as a percentage

of restaurant revenue.”75 Similarly, Starbucks

reported, “cost of sales as a percentage of total

net revenues decreased 80 basis points,

primarily due to store initiatives to reduce

waste (approximately 40 basis points).”76

Brinker International also acknowledges

reductions in costs of sales due to their efforts

to reduce waste.77 Burger King’s franchise, FOR

Norwest, works together with Global Trash

Solutions waste management consulting

services company to minimize waste and

increase recycling rates. Within two weeks of

the partnership start, FOR Norwest had already

achieved an average savings of $3,300 per

month for all locations combined.78

Many companies are innovating to address this

issue. McDonald’s, Yum! Brands, and Darden

are part of the Food Waste Reduction Alliance.

In Scotland, McDonald’s implemented its Fries

to Fuel program to turn cooking oil waste into

fuel for its delivery vans.79 Through its Fries to

Fuel program, McDonald’s recycles 4.5 million

liters of used cooking oil annually. The

company turns the oil into enough biodiesel to

fuel half of its distribution fleet, which by one

estimate, produces carbon emissions reductions

equivalent to taking 2,500 cars off the road.80

In a similar effort, one hundred percent of KFC

cooking oil is reused as biodiesel in the U.K.81 In

2004, Darden Restaurants started donating

surplus food to local community food banks in

the U.S. and Canada. In fiscal year 2013, the

company donated 10.9 million pounds of food,

diverting them from landfills and providing

meals to families.82 KFC and Pizza Hut

restaurants in the U.S. divert nearly 15 million

pounds of food annually to local hunger relief

agencies.83

The U.S. demand for food service disposables is

expected to grow to $19.7 billion by 2017.

Restaurants and bars are the dominant market

for these products.84 In order to manage waste,

there is a growing number of municipal

regulation around the use of nonrecyclable

disposable containers in restaurants. As of

2013, more than 40 cities had passed at least

partial bans on the commercial use of

polystyrene containers.85 In San Francisco, an

ordinance went into effect in 2007, directing

food vendors to use biodegradable,

compostable or recyclable food containers.86

While city and county ordinances have been the

main drivers for shifting restaurants away from

nonrecyclable disposable tableware, customer

criticism about the volume of paper cup waste

has led companies to encourage customer use

of personal tumblers. Starbucks uses 4 billion

paper cups globally each year; in 2011,

customers used personal mugs for 34 million

drinks at company-owned stores.87 By 2015,

the company aims to serve five percent of

beverages made in its stores in personal

tumblers.88

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Value Impact

Waste reduction efforts are likely to help

companies reduce procurement and disposal

costs, improving operational efficiency. Food-

handling and waste-packaging regulations are

likely to continue evolving in certain

jurisdictions, as exemplified by the case of

Massachusetts. Companies that are able to stay

ahead of regulations will not only see a positive

impact on brand image, but will likely reduce

their cost of compliance and avoid the risk of

fines and penalties.

The amount of food waste, and percentage

that is diverted, indicate a company’s exposure

to operational and regulatory costs. It also

indicates its ability to mitigate impacts on

production and disposal costs though waste

reduction and waste diversion efforts. On the

packaging side, waste mitigation efforts can be

assessed through the ratio of packaging from

recycled renewable sources and that which is

reusable, recyclable, and/or compostable.

Food Safety

Both food preparation methods and quality of

ingredients can impact food safety. Restaurant

food safety could also be compromised due to

the breadth of the supply chain. The global

nature of the industry, as well as the

franchising model, make it difficult for

restaurant companies to ensure safety of their

food supplies. Regulations across states and

countries vary on the frequency of food vendor

inspections, type of grading or scoring system

used to rate the safety of food vendors, and

public disclosure of inspection scores. In the

U.S., most foodborne illness outbreaks linked

to restaurants are related to unsafe food

handling by workers. Studies have shown that

time constraints and lack of adequate resources

are the main factors that cause food workers to

handle food unsafely.89

Food safety is of utmost important to

restaurants. Food safety concerns in either

company-owned or franchise-operated

locations can affect the core of restaurant’s

reputation. Companies that adhere to the

industry standards of food preparation and

safety, such as the National Restaurant

Association’s ServSafe program, are likely to be

better positioned to protect shareholder value.

Company performance in this area can be

analyzed in a cost-beneficial way internally and

externally through the following direct or

indirect performance metrics (see Appendix III

for metrics with their full detail):

• Percentage of restaurants inspected by

a food safety oversight body,

percentage receiving critical violations;

• Number of recalls, total amount of

food product recalled; and

• Number of confirmed foodborne illness

outbreaks, percentage resulting in CDC

investigation.

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Evidence

According to the 2013 Consumer Trust survey

by the Center for Food Integrity, 63 percent of

respondents ranked food safety as a high

concern. This was a five percent increase over

the previous year, indicating the rising

importance of the issue.90 Corporations in this

industry recognize food safety as a material

issue. As Darden Restaurants states in its 2012

Form 10-K, “failure to maintain food safety

throughout the supply chain and foodborne

illness concerns may have an adverse effect on

our business.”91

In summer 2013, reports in Chinese media of

excessive levels of bacteria in ice at three KFC

locations led to a significant decline in

earnings. This report came on the heels of a

well-publicized investigation regarding the high

levels of antibiotics found in batches of chicken

used by the company.92

Failure to ensure safety of food served to

customers may result in foodborne illness

outbreaks. In 2013, at least 238 cyclospora

illness cases, predominantly in Iowa and

Nebraska, were connected to Olive Garden and

Red Lobster outlets owned by Darden

Restaurants.93 The company had previously

been linked to 300 cases of gastrointestinal

illness among people who had eaten at Olive

Garden restaurants in 2006. Darden settled a

class action lawsuit for $387,000. In 2011, an

Olive Garden worker in Fayetteville, North

Carolina tested positive for Hepatitis A. State

officials advised people who had eaten at the

restaurant during an eight-day period to get

immunized. Darden Restaurant had to further

compensate $250 to each immunized

individual. The total fund for compensation

amounted $375,000.94

The franchise model exposes companies to

reputational risks around food safety. Safety

breaches, particularly those resulting in fines

and penalties, can become a media sensation.

In 2012, several eateries in Western Australia

were fined a total of AUD 400,000 for food

safety breaches, including a franchised

McDonald’s restaurant that was fined

AUD 180,000 for violations related to “food

storage, cleanliness of premises and the

presence of ‘animals and pests.’”95 Wendy’s

reports the impacts of perceived decline in

quality of food in its FY2012 Form 10-K:

“(i)ncreased use of social media could create

and/or amplify the effects of negative publicity

(…) A decrease in guest traffic to our

restaurants as a result of these health concerns

or negative publicity could result in a decline in

sales and operating results at company-owned

restaurants or in royalties from sales at

franchised restaurants.”96

To manage the issue, restaurants have to

ensure the highest standards of food safety

among their suppliers. Failure to monitor the

quality of supplied products may open

companies in the industry to the risks of supply

disruptions as well as negative publicity. In July

2014, Chinese authorities accused Shanghai

Husi, a subsidiary of the U.S.-based meat

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supplier OSI Group Inc., of intentionally selling

expired meat products to restaurant chains. OSI

Group withdrew all products manufactured by

the subsidiary from the marketplace in attempt

to protect the company’s reputation with

consumers and customers. Yum! Brands, a

longtime customer of OSI Group, decided to

terminate supplier relations with the company.

Another customer, McDonald’s, transferred its

business to Husi’s new plant. McDonald’s also

cut all of its orders of chicken products from

China to its Japanese restaurants. Seven & I

Holdings, Starbucks, and Burger King

Worldwide also cut their ties with Shanghai

Husi after the incident. Yum! Brands and

McDonald’s operate more than 6,400 and

2,000 restaurants in China respectively.97 The

company recalled beef, pork, and chicken items

from its Chinese restaurants to prevent further

damage of consumers’ trust in McDonald’s

food safety.98 Soon after the incident, China’s

government banned imports and sales of

products processed by Husi Group. McDonald’s

sales were negatively affected in the third

quarter of 2014 by the Chinese meat scandal.

The loss of the supplier had a significant impact

on the company, as the Husi plant was

supplying 20 percent of chicken meat to

McDonald’s Japan.99 In October, McDonald’s

estimated $157 million net loss in Japan.100

According to the company’s report, July sales

dropped 2.5 percent globally with a 7.5

percent decline in the Asia/Pacific, Middle East,

and Africa (APMEA) segment. In August, sales

further decreased by 3.7 percent globally and

14.5 percent in the APMEA segment. The meat

safety scandal significantly damaged the

company’s reputation among Chinese

customers and contributed to lower sales.101 In

Hong Kong, the Center for Food Safety started

an investigation to determine whether

“McDonald's knowingly sold potentially tainted

food to the public over a four-day period

during which it denied using food from

Shanghai Husi.” The company later admitted

that the food had, in fact, been supplied by

Husi.102

Value Impact

Management of food safety is likely to have a

material impact on a restaurant company’s

financial results. Poor performance can lead to

reputational damage from high-magnitude,

negative media attention, impacting market

share and revenue. Serious violations may result

in restaurant closures, further impacting

revenue. It can also lead to extraordinary

expenses and contingent liabilities associated

with consumer lawsuits, remediation, and

compensation costs, as well as regulatory fines

and penalties. Reputational damage from food

safety issues tends to have a long-term impact,

and affects a company across most of its

locations, both owned and franchised, as they

operate under the same brand name. Together,

food safety management can contribute to

restaurant companies’ operational risk and cost

of capital. Publicized cases of foodborne

illnesses, when connected to a particular

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company, can lead to reputational damages,

impacting market share and revenue.

The percentage of the inspected restaurants

that were found in violation of food safety

standards indicates the strength of a company’s

management of the issue. A higher level of

violations may also indicate a higher risk of

high-impact incidents, such as foodborne illness

outbreaks. The number of recalls indicates the

strength of a company’s food safety

management and the probability of high-

magnitude disruptions in the supply chain.

These disruptions have implications for both

operating and extraordinary costs. Recalls can

also lead to potential consumer litigation and

remediation costs. The amount of food

products recalled reflects how badly recall

events disrupt the supply chain.

Nutritional Content

The ‘obesity epidemic’ in the U.S. has put the

Restaurants industry under the spotlight. In

addition to displaying calorie counts,

restaurants are increasingly pressured to

improve the nutritional content of menu

offerings.103 Pressure on the Restaurants

industry to offer healthier menus will be

exacerbated in consumer segments that are

considered more vulnerable. These segments

include children or other demographic groups

with high rates of obesity and obesity-related

disease. The industry has also been under

scrutiny for directing advertisements toward

children and minorities.

Increasing popularity of healthier meals

represent a great opportunity for restaurant

companies to capture the growing demand.

Improving nutritional content of restaurant

offerings may reduce negative social

externalities and also have a positive impact on

the bottom line.

Company performance in this area can be

analyzed in a cost-beneficial way internally and

externally through the following direct or

indirect performance metrics (see Appendix III

for metrics with their full detail):

• Percentage of meal options consistent

with the Dietary Guidelines for

Americans or foreign equivalent, sales

from these options; • Percentage of children’s meal options

consistent with national dietary

guidelines for children or foreign

equivalent, sales from these options;

and

• Number of child advertising impressions

made, percentage promoting products

that meet national dietary guidelines

for children or foreign equivalent.

Evidence

Obesity is a national public health concern in

the U.S. As of 2014, 34.9 percent of adults or

78.6 million people were obese, defined as

BMI>/=30 kg/m2. Meanwhile, 68.5 percent

were overweight or obese, defined as

BMI>/=25 kg/m2. There are more women than

men who are obese: 36.1 percent versus 33.5

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percent. Black women have the highest rates of

overweight and obesity at 82 percent, as well

as extreme obesity, defined as BMI>/=40 kg/m2,

at 16.4 percent. According to the National

Health and Nutrition Examination Survey

(NHANES) data, 31.8 percent of U.S. children

are overweight or obese, and 22.8 percent of

children between the ages two to five years old

are overweight or obese. The ratios are close to

35 percent for children of six and older.104

Unhealthy diet and eating habits combined

with inactivity are often cited as the primary

causes of obesity. The Credit Suisse Research

Institute's 2013 study "Sugar: Consumption at

a crossroads" found that around 90 percent of

general practitioners surveyed in the US,

Europe and Asia consider excess sugar

consumption to be related to the rapid increase

in diabetes or obesity. The global daily average

consumption of added sugar has risen by 45

percent in the last 30 years to 17 teaspoons per

person. In the U.S. this number is 40 teaspoons

per person daily. The American Heart

Association recommends that women eat no

more than six teaspoons of added sugar a day

and men no more than nine. According to the

Credit Suisse study, 43 percent of added sugars

in a person’s diet come from sweetened

beverages. On average, six to 12 percent of

added sugar in a person’s diet comes from fast

food restaurants.105 The analysis shows a high

correlation between type II diabetes and obesity

and full-calorie soft drinks.106

Obesity-related health problems represent a

significant cost to the U.S. economy. In 2008,

the estimated annual medical costs for obese

people were $1,429 higher than those of

normal weight, or $147 billion annually.107 The

Credit Suisse study estimates that 30 to 40

percent of U.S. healthcare expenditures go

towards diseases directly related to the

overconsumption of sugar.108

A recent 14-year study in the American Journal

of Preventive Medicine found that the

nutritional quality of fast food available on the

marketplace remained almost unchanged from

1997 to 2010. The average nutritional values of

fast food restaurants offerings went up only by

3 points, from 45 to 48, while the average

American diet score is 55. Fast food menus

usually contain high amounts of fat, sugar, and

salt, contributing to Americans’ unhealthy diet

and diet-related chronic diseases. These

findings suggest a serious social problem, as a

quarter of Americans eat fast food two or more

times a week.109

Publicly traded fast food restaurants generate

approximately $77 billion in revenue globally,

representing more than a third of the total

industry revenue.110 Spending on fast food has

been on the rise. In 1970, Americans spent

$6 billion on fast food.111 Four decades later,

total U.S. sales for fast food restaurants

exceeded $157 billion. With an average $1,335

spent per household on fast food each year,

the impact of fast food on the health of

Americans is significant.112 Conversely,

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consumer and regulatory pressures toward

healthier menus is likely to have a significant

impact on the limited-service segment of this

industry. While menu-labeling laws have

existed in smaller jurisdictions for several years,

the PPACA Section 4205 established

requirements for nutrition labeling of standard

menu items in chain restaurants with 20 or

more locations.113 The disclosure should help

customers make informed food choices and

maintain healthy dietary practices.

Studies on the impact of labeling on customer

choices at restaurants have shown mixed

results. A Stanford Graduate School of Business

study found that since Starbucks started

posting calorie information in New York City

stores in April 2008, as required by city law, the

average customer calorie intake dropped by six

percent per transaction. On the other hand, the

International Journal of Behavioral Nutrition

and Physical Activity published seven different

studies that found no effect on customers’

purchasing behavior from food labeling.114

Children and minorities are particularly

vulnerable when it comes to poor nutrition

content of food offerings and their marketing.

Marketing nutritionally poor meals may

contribute to childhood obesity. Analysis of

marketing data indicates that young children

and minorities are targeted in restaurant

advertising campaigns. According to a Federal

Trade Commission report, food companies,

including restaurants, allocated $1.79 billion on

marketing to youth ages two to 17 in 2009.115

A Yale study also found that African American

children and teens see at least 50 percent more

fast food ads than their white peers.116

To address the concern about advertising of

unhealthy foods in 2006, packaged food and

fast food restaurant companies created the

Children’s Food and Beverage Advertising

Initiative (CFBAI). CFBAI is a self-regulatory

program that aimed to promote healthier

dietary choices and healthy lifestyles to children

under 12. Large industry players like

McDonald’s and Burger King participate in the

program.117

Unfortunately, several studies show that such

self-regulatory programs as CFBAI are

unsuccessful and ineffective in serving their

efforts. CFBAI members set their own nutrition

criteria for advertised products and their

pledges cover only advertising through media

channels that have more than 35 percent of

their audience comprised of children under

12.118 A study from the University of Illinois at

Chicago suggests that while many foods made

by CFBAI companies meet federal nutrition

guidelines, companies choose to market less

healthy options to children more heavily. For

example, 98 percent of ads from CFBAI

members were products high in nutrients to

limit (NTL), including saturated fat, trans fat,

sugar, and sodium. The number is higher than

that for all food and beverage ads seen by

children, which was 84 percent. The study

concludes that the foods advertised on

children’s programing have lower nutritional

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content than foods advertised on general

audience programming, and that products

advertised to children by the CFBAI members

are of lower nutritional quality that those

advertised by nonmembers.119

While restaurants have increased the number of

healthier offerings, the industry is still lagging

behind recommended nutritional standards. In

2010, the Yale Rudd Center for Food Policy &

Obesity published a report on the nutritional

quality of fast food menus with a followup

report in 2013. They found that while

restaurants added healthier options since 2010,

less than one percent of all children’s meal

combinations met recommended nutrition

standards.120

Yum! Brands acknowledges in its 2013 Form

10-K that the Restaurants industry has been

subject to claims that relate to the nutritional

value of food and claims that the fast food

model has led to a rise in obesity of

customers.121 As a result, major industry

players, including Burger King and McDonald’s,

have joined the Children’s Food and Beverage

Advertising Initiative, a self-regulatory program

run by the Council of Better Business Bureaus.

The voluntary program was designed to shift

the mix of foods advertised to children under

12 to healthier choices.122

Restaurant operators have recognized the

market trends and adapted their business

strategies to develop stronger relations with

stakeholders. For example, several companies

institutionalized the role of “Chief Health and

Wellness Officers” to help top management

align companies’ approach to nutrition and

wellness with their stakeholders’ needs. In

2014, Jonathan Blum, chief public affairs and

global nutrition officer at Yum! Brands,

participated in a panel on nutrition at the

National Restaurant Association’s annual trade

show. He noted: “listening to stakeholders

critical of the industry had been a driver of the

company’s and industry’s evolution and

commitments to improving food offerings

through healthier choices and greater

transparency through labeling.”123 Separately,

Taco Bell announced that by 2020 the company

plans to have 20 percent of its combo meals

meet one-third of the dietary guidelines

recommended by the federal government. The

company identifies changing regulations, as

well as customer demands for more nutritious

fast food choices, as the main drivers of the

new strategy.124

While the studies mentioned above indicate

that the industry as a whole is not significantly

improving its performance in regard to fast

food nutrition, some companies have made

progress by upgrading nutritional content of

their offerings. Growing demand for healthy

foods may benefit these companies and allow

them to capture new market opportunities. A

2014 study by the Johns Hopkins Bloomberg

School of Public Health of 66 large chains

found that the menu items introduced in 2013

contained 12 percent fewer calories, on

average, relatively to the items that were

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available in 2012. The 60-calorie reduction is

likely to have a noticeable positive impact on

obesity. About 36 percent of adult Americans

eat at a fast food restaurant each day with a

mean caloric intake of 315 calories. The

reduction came from introduction of new items

with lower calorie content to menus rather

than reformulating old ones. For example, in

2013, McDonald’s introduced a grilled onion

and cheddar burger. It has only 310 calories, 44

percent fewer than the average 558 calories of

its burgers on the 2012 menu. Brinker

International’s Chili’s chain added to the 2013

menu a new 580-calorie Mango Chile Chicken

entrée that has 35 percent fewer calories than

an average 2012 Chili’s entrée. Moreover,

restaurants reduce calories in their meals by

switching to lower-calorie dressings, reducing

the amount of cheese, and offering more salad

options.125

Companies that are able to penetrate the

healthy food market may capture growth

opportunities and improve their bottom line. A

Hudson Institute study found that lower-calorie

servings drove an increase in same-store sales

and growth in restaurants servings. Between

2006 and 2011, French fries declined in both

the number of servings and the share of total

food servings among large, quick-service

chains. Meanwhile, sales of lower-calorie

beverages outperformed traditional

beverages.126 In recent years, some companies

have started improving children’s meal options.

Most restaurants offer at least one healthy side

dish. For example, McDonald’s Happy Meal

sides now automatically include a half portion

each of French fries and apples. The NRA

What’s Hot 2014 survey lists nutritional value

of children’s’ and regular meals high on trends

affecting restaurants.127

Value Impact

Demand in the restaurant industry is

increasingly driven by consumer preferences for

healthier and heathier choices. Companies that

are able to offer more nutritious menu options

are likely to capture new markets for health-

conscious consumers and improve market share

with mainstream consumers. A higher share of

nutritious options may have a beneficial effect

on a company’s reputation and revenue growth

in the long term.

Consumer and regulatory pressure for healthier

choices at restaurants is likely to remain high in

the future, and force companies to make

nutritional information clear for customers. This

is especially relevant since the Restaurants

industry has been subject to claims that menus

have led to obesity of certain customers,

including children. Companies that invest in

better nutritional content are likely to be

positioned to capitalizing on shifting consumer

preferences. At the same time, these

companies will be more adaptable to possibly

stricter regulations in the future.

The percentage of meal options consistent with

dietary guidelines provides insight into a

company’s success at capturing the demand for

products that address nutrition concerns,

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specifically those directed at children. This

metric—together with the number of

campaigns directed towards children, and the

percentage of meals that meet the National

School Lunch Program criteria—also

characterizes a company’s exposure to adverse

regulatory actions and public outcry around

childhood obesity and marketing food to

children.

HUMAN CAPITAL

Human capital addresses the management of a

company’s human resources (employees and

individual contractors), as a key asset to

delivering long-term value. It includes factors

that affect the productivity of employees, such

as employee engagement, diversity, and

incentives and compensation, as well as the

attraction and retention of employees in highly

competitive or constrained markets for specific

talent, skills, or education. It also addresses the

management of labor relations in industries

that rely on economies of scale and compete

on the price of products and services. Lastly, it

includes the management of the health and

safety of employees and the ability to create a

safety culture for companies that operate in

dangerous working environments.

Labor cost in the Restaurants industry can

constitute up to a third of revenue. Although

workers earn modest salaries, often at or just

slightly above government-mandated minimum

wages, changes to minimum wage laws can

have a noticeable impact on a restaurant's

costs and margins.128 The average age of

employees in the industry is rising. Companies

are hiring more retirees and immigrants, and

are increasingly making use of automation.129

Despite these trends, Restaurants industry job

growth outpaced the overall economy in 13

consecutive years, from 2000 to 2012. In 2012,

restaurant job growth rose three percent,

compared to 1.4 percent nationally.130

Employing approximately 10 percent of the US

workforce, the Restaurants industry is expected

to add 1.3 million jobs over the next decade,

with employment reaching 14.4 million by

2023.131

A company’s ability to attract, develop and

retain talent and ensure employee health and

safety indirectly but significantly influences the

results of its operations. Better disclosures

would allow investors to differentiate between

companies based on their human capital

management strategy, and to identify

companies with leading performance in this

area.

Fair Labor Practices

The hospitality industry is labor intensive, and

much of the staff is low-skilled, part-time, or

seasonal workers. It is among top job creators

and is an entry point for young and migrant

workers to join the workforce.132 Restaurant

staffs in franchised or licensed locations may be

employed by a third party.133 In addition, since

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many chains exist across continents, ensuring

consistent labor standards can be a

challenge.134 This issue pertains to restaurant

workers in both company-owned and franchise

locations. Labor issues at franchises do affect

brand image because customers cannot make a

distinction between company-owned and

franchised stores.

Compensation can differ within the industry.

While fast food workers do not earn customer

gratuities, or tips, full-service workers do.

Minimum federal wage for tipped workers is

significantly lower from that of their nontipped

counterparts. Food service positions that

require repeated completion of a simple task,

like preparing ingredients and taking orders,

can be perceived as dull and mechanical. These,

in addition to low wages, make employee

retention difficult.

The provision of the PPACA that requires

employers with 50 or more employees to offer

health insurance may affect franchise operators

who do not currently offer health benefits to

employees.135 This may impact corporate

revenue growth if the financial burden of this

regulation significantly decreases profit margins

of franchises and discourages franchise owners

from opening new locations. Companies that

offer competitive wages, safe working

environments, and offer opportunities for

professional growth will be able to improve

worker morale and reduce turnover rates and

associated costs. At the same time, good

working conditions and competitive pay are

likely to reduce the risks of employee strikes

and operational disruptions.

Company performance in this area can be

analyzed in a cost-beneficial way internally and

externally through the following direct or

indirect performance metrics (see Appendix III

for metrics with their full detail):

• Voluntary and involuntary employee

turnover rate for restaurant employees;

• Average hourly wage for restaurant

employees, by region; percentage of

employees earning minimum wage; • Amount of legal and regulatory fines

and settlements associated with labor

law violations; and

• Amount of tax credit received for hiring

through enterprise zone programs.

Evidence

There are currently 3.3 million workers in the

U.S. who make minimum wage. Of those, 55

percent are in the leisure and hospitality

industry. By occupation, 47 percent of the 3.3

million minimum wage workers are employed

in food preparation and serving positions.136 If

the proposed “Fair Minimum Wage Act” is

passed, minimum wage will be raised nationally

to $10.10 an hour, from its current $7.25.137

The bill is opposed by the International

Franchise Association (IFA), which represents

roughly 12,500 franchise operators and 1,275

franchisors globally. According to the IFA,

minimum wage increase “would unfairly and

unjustifiably destroy the established franchise

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model.” On the other hand, McDonald’s CEO

Don Thompson expressed support of the

legislation going forward. The opposite stance

on the issue can be explained by the fact that

wage increases are likely to affect franchisees

rather that franchisors, like McDonald’s, that

do not operate most retail locations.138 The

Senate voted this bill down in April 2014, but

Democrats have vowed to reintroduce in the

future, citing its massive popular support.139

The majority of the workforce of the top

companies in the industry is hourly workers. For

example, according to the 2013 Form 10-K of

Darden Restaurants, 196,000 of the 206,000

company’s workers were hourly restaurant

personnel.140 Meanwhile, 41,600 of Chipotle’s

45,340 workers are hourly employees,

according to the company’s 2013 Form 10-K.141

Also, a significant share of employees in the

Restaurants industry are part-time workers. For

example, 86 percent of the 539,000 Yum!

Brand employees were part-time, according to

the company’s 2013 Form 10-K.142

The fast food work model utilizes low-skilled

workers specializing in discrete tasks. With low

wages, temporary workers, and little chance of

moving upward, the industry has been one of

the ‘100 percent turnover’ industries—

indicating that the team working at the

beginning of the year may be completely

different from that at the close of the year.

However, the turnover rate has been declining

in part due to the economic downturn and the

lack of alternative low-skill positions. In the

quick-service Restaurants industry, the turnover

rate was 120 in early 2009, but dropped to 90

percent in 2011. The turnover is better for

limited-service restaurants, but at 61 percent in

2012, the rate is still high.143

While the Restaurants industry employs over 13

million people in the U.S., the unionization

rates are very low. Nevertheless, there are

attempts from unions around the country to

organize food service workers.144 In July 2014,

the general counsel of the National Labor

Relations Board (NLRB) ruled that McDonald’s

has a joint employer status with its franchisees.

The ruling means that the company could be

held liable for fair labor practices violation by

its franchise operators. The ruling may help the

national campaigns for higher wages in the

industry to amplify the pressure on fast food

chains and open the doors for unions.145 Fast

food workers continue to demand higher

wages and the ability to unionize by organizing

simultaneous strikes in many U.S. cities.146 If

restaurant workers were allowed to unionize, it

would have a material impact on a company’s

operations. For example, in its Form 10-K for

fiscal year 2013, Chipotle states: “If a

significant portion of our employees were to

become union organized, our labor costs could

increase and our efforts to maintain a culture

appealing only to top performing employees

could be impaired. Potential changes in labor

laws, including the possible passage of

legislation designed to make it easier for

employees to unionize, could increase the

likelihood of some or all of our employees

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being subjected to greater organized labor

influence, and could have an adverse effect on

our business and financial results by imposing

requirements that could potentially increase our

costs, reduce our flexibility and impact our

employee culture.”147

In order to mitigate the higher cost of providing

mandatory health insurance to full-time

workers, companies in the industry are trying to

hire more part-time workers. In 2012,

foreseeing the upcoming PPACA requirements,

Darden Restaurants attempted to replace full-

time workers with part-time workers to keep

costs down by avoiding paying insurance. The

experiment failed, and the company received

negative feedback from customers. Negative

publicity resulted in the company’s sales

decreasing, even as Darden’s efforts to attract

customers via promotions failed. The company

posted a 2.7 percent drop in revenue in the

second fiscal quarter of 2012. The owner of

Olive Garden and Red Lobster stated that after

reviewing the test results, the company would

not “bump any full-time workers down to part-

time status”, but in the long term, it would still

be shifting towards part-time workforce.148

The working conditions and worker

compensation at fast food and other

restaurants have been receiving substantial of

media attention. While the Restaurants industry

provides jobs for low-skilled workers, those

employed by the industry still require public

assistance. The University of California Berkeley

Labor Center estimated that 52 percent of the

families of frontline fast food workers are

enrolled in public programs, and the cost of

public assistance is nearly $7 billion annually.149

In 2009, a study found that about 18 percent

of restaurant and hotel employees face

minimum wage violations, 70 percent face

overtime violations, and 74 percent of workers

are required to do tasks without being paid

(“off-the-clock” violations). Among the most

common violations are deducting 30-minute

breaks when employees don’t take them,

requiring workers to pay for uniforms when it

makes their paycheck below a minimum wage.

In 2012, a Subway franchisee was found in

violation of labor laws when it was not paying

workers for 30 minutes on duty during the

nightly closing routine. Moreover, the franchise

was making illegal deductions from employees’

paychecks when there were cash register

shortages. The practice resulted in workers’ pay

to drop below the federal minimum wage. The

franchisee was ordered to pay $9,900 back to

72 employees. Another Subway franchisee from

Michigan was asking workers to sign contracts

waiving time-and-a-half pay for overtime. The

DOL investigation ordered the company to pay

total damages of $52,000 to 53 workers.150

According to a CNNMoney analysis of DOL

data, Subway has been charged with

underpaying its employees more often than any

other fast food chain. Over 1,100 investigations

of the company’s franchises found

approximately 17,000 violations of the Fair

Labor Standards Act. Franchisees had to

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reimburse Subway workers more than $3.8

million from 2000 to 2013. McDonald’s and

Dunkin’ Donuts are the next most frequent

wage violators. All three companies utilize a

franchising model for their services and try to

distinct themselves from their franchisees.

Dunkin’ Donuts responded with the following

statement: “franchisees are solely responsible

for all employment decisions at their

restaurants." McDonald’s statement cautioned

“against drawing broad conclusions based on

the actions of a few.” The franchise model

makes it difficult for the DOL to enforce

regulation on parent companies directly, as the

legal structure provides them with a protection.

Moreover, the Labor Department has to

investigate each franchise individually and treat

them as a small business.151

Data released by law firm Seyfarth Shaw LLP

indicates that federal wage and hour lawsuits

filed under the FLSA reached a record high in

2013. However, only a few investigations were

focused on fast food industry. Attorneys went

after higher paying industries, like financial

services, to get higher payouts. But Hollis

Pfitsch, staff attorney for the Legal Aid Society,

states: “it’s only now that the fast food

industry is getting attention from the private

sector, probably because of all the organizing

and workers speaking out.”152

As stated in the industry description, the cost

of labor represents a significant portion of

operational expenses of restaurant companies.

To reduce its expenses and improve

profitability, Darden Restaurants put workers

on a “tip sharing” program: i.e., waiters and

waitresses would need to share their tips with

busboys, bartenders, and other employees. It

allowed the company to pay workers “tip credit

wage,” which is significantly lower than the

federal minimum wage of $7.25. Moreover, at

Red Lobster restaurants, servers now handle

four tables at a time, instead of three.153

Low wages increase the tension between

employers and their workers, and

dissatisfaction may result in lawsuits and work

stoppages, which directly affect operational

performance. In December 2013, low wage

workers, including fast food workers in

hundreds of cities, went on strike to demand

higher wages.154 Darden Restaurant is facing a

class action lawsuit alleging that they required

workers to work off the clock. While the

outcome of the lawsuit is undetermined,

plaintiffs are seeking back wages, liquidated

damages, and attorney’s fees.155 Chipotle is

facing a similar class action lawsuit regarding

employees who were classified as salaried and,

therefore, not paid for overtime.156 In 2014,

seven class action lawsuits were filed by

McDonald’s workers in New York, California,

and Michigan. The company was allegedly

forcing employees to work off the clock, was

not paying overtime, and was taking hours off

their time cards.157 Similar allegations have

been filed against other companies in the

industry, including Yum! Brands, Starbucks,

and others.

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According to the Yum! Brands website, over 80

percent of U.S. restaurants and 90 percent of

international restaurants are owned by

franchisees or licensees—an important reason

why it is nearly impossible for the company to

oversee worker practices in every restaurant.158

Yet actions by franchisees and licensees directly

impact the brand due to the ambiguity of

ownership of any particular location. In 2013, a

lawsuit was filed against a McDonald’s

franchisee in Pennsylvania who paid their

employees through debit cards, a method of

payment that is legal as long as the card fees

do not result in a net wage lower than the

federal minimum wage.159 Recognizing the

importance of employee retention, the

McDonald’s franchisee set sales targets and

created competition between the stores it owns

and operates to boost sales and improve

employee morale through awards for meeting

targets.160

But franchisees’ mismanagement of the issue

may have an adverse impact on a parent

company, not only through reputational

damage, but also by sharing liabilities for

violations. For example, the international

corporation Domino's Pizza was added to the

suit against its New York-based franchisee for

minimum wage and overtime violation.

Allegedly, the company knew about the

franchisee’s violations, as it had control over

hiring policies, training, staff uniforms, point-

of-sale systems, and time and pay records. In

the settlement, the franchisee agreed to pay

$1.28 million in back wages to 61 employees,

with Domino's corporate parent agreeing to

minor concessions. As valued by a lawyer for

the franchisee, Domino’s contributed about

$140,000 in a form of waiving and delaying

some of the franchisee’s payments. But in its

statement, Domino’s said that it was “not

‘contributing’ to the settlement in any way”

and that the company expects to collect

“several hundred thousand dollars” in back

royalties from the franchisee.161

Chipotle provides an excellent example of best

practices in the industry to promote better

working conditions, which can result in happier

employees and thus lower turnover. Chipotle

offers store employees benefits such as higher

wages, health care, 401(k) plans, and paid

vacation. The company aims to hire managers

from within and gives managers a $10,000

bonus for each crew member they help train to

general manager level.162 As a result of the

companies’ initiatives, they were able to hire 97

percent of salaried managers from within their

store.163

Companies that are able to improve working

conditions and ensure fair wages will be able to

lower turnover rates and lower labor costs. In

some areas, enterprise zone tax credits

subsidize the cost of hiring new workers.

However, these programs are the subject of

regulatory scrutiny and may be modified which

could limit a company’s ability to qualify for

some of such credits.

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Several states in the U.S. have enterprise zones

(EZs): geographic areas in which companies can

qualify for subsidies such as investment tax

credits, job creation tax credits, and property

tax abatements, among others. EZs were

created with an intention to improve economic

conditions of depressed areas by bringing in

businesses.164 Over the years, many EZ

programs proved to be ineffective and

inefficient, draining money from states’

budgets. Since its inception and up to 2013,

California’s EZ Program had a total cost to the

state of $4.8 billion. It benefited less than one

percent of the state’s corporation—mainly

those with assets of over $1 billion.165 The

Labor Federation has identified McDonald’s,

Yum! Brands, and Starbucks among them.166 In

2010 in California, service corporations claimed

39.3 percent of the total dollar value of tax

credits, followed by retail and wholesale trade

corporation.167 Some companies in the industry

may have turnover rates over 100 percent;

therefore, they may repeatedly qualify for tax

credits for filling the same position. Many of

these federal and state zones are under public

scrutiny, and may be either eliminated or

requirements to qualify for tax benefits may

become stricter. In California’s EZs, to qualify

for employment credits a company would have

to create a new position rather than just to

replace a worker on existent one. Moreover,

the positions created should have a minimum

wage of $12 an hour, and the credit would be

capped at 350 percent of minimum wage.168

Companies that minimize turnover rates and

are less dependent on EZ tax credits will be able

to mitigate risks from the changing regulations

around EZs.

Value Impact

Successful employee engagement and fair

treatment of workers are likely to improve

employee morale and reduce turnover. In turn,

this can lead to improved customer experience,

with upside impact on revenue and growth. On

the downside, mismanagement of these issues

can impact customer satisfaction and brand

value, especially when a labor issue escalates in

the media. Unfair labor practices can also result

in worker strikes and create a confrontational

relationship between employers and labor

groups. As an outcome, it could have chronic

impact on the company’s revenue and market

share.

High turnover rates and potential increases in

wage costs through outside influences, such as

new minimum wage regulations, can also

impact companies’ long-term cost structure. As

the industry is subject to laws and regulations

governing minimum wage requirements,

overtime, immigration, and employee hiring

and termination, labor practices can result in

legal actions from employees or regulators. This

potentially results in extraordinary expenses and

contingent liabilities.

While overall turnover is high in the industry,

companies’ voluntary and involuntary staff

turnover rates indicate how well they are

managing their workforce compared to peers.

Involuntary turnover is a proxy for staff’s

I N D U S T R Y B R I E F | R E S T A U R A N T S | 29

engagement and the company’s ability to

maximize customer experience. The amount of

legal and regulatory fines and settlements from

labor law violations is a lagging indicator of

how well restaurant companies have been

managing this issue. It also indicate the

probability and magnitude of the direct costs

associated with large penalties and fines and

remediation activities. The average hourly wage

for lodging employees provides a sense of how

companies are balancing maximization of

profits. It also provides a sense of how

companies are balancing investments in the

wellbeing, and ultimately performance, of

customer-facing staff.

LEADERSHIP AND GOVERNANCE

As applied to sustainability, governance

involves the management of issues that are

inherent to the business model or common

practice in the industry and are in potential

conflict with the interest of broader stakeholder

groups (government, community, customers,

and employees). They therefore create a

potential liability, or worse, a limitation or

removal of license to operate. This includes

regulatory compliance, lobbying, and political

contributions. It also includes risk management,

safety management, supply chain and resource

management, conflict of interest, anti-

competitive behavior, and corruption and

bribery.

Sustainable sourcing of food and disposable

tableware is the main governance issue

impacting the industry. With disclosure in

regard to how companies manage such

tensions, as well as the additional costs

associated with failing to do so, investors will

be able to reward industry leaders. Investors

will also be able to assess the reputational and

regulatory risks and impact on value for

companies performing poorly.

Supply Chain Management & Food Sourcing

Supply chain management is an important issue

for restaurant operators. Sourcing from

suppliers that have high quality standards,

employ environmentally sustainable farming

methods, and honor labor rights will better

position companies to protect shareholder

value.

Sourcing quality ingredients to maintain

consistency and high level of quality across

different locations can be operationally

challenging. This problem is exacerbated by the

global nature of the industry. The perceptions

and risks of the use of genetically modified

organisms (GMOs), antibiotics, and hormones

vary across markets, as do regulations. The

production of meat can be energy- and water-

intensive. Beef production generates

greenhouse gases, with enteric methane (CH4)

accounting for the largest share of them. Fruit

and vegetable farming has associated

environmental impacts: fertilizer runoff,

I N D U S T R Y B R I E F | R E S T A U R A N T S | 30

pesticide use, and so on. In addition, there are

the social issues of ensuring worker rights

along the supply chain, as well as animal

welfare.

Demand from food and beverage industries,

including restaurants, drive and shape

agricultural production, indicating that actions

by industry players have larger impacts on

society. Therefore, sustainable and ethical

sourcing by industry players is necessary to

ensure continued future supply and to minimize

lifecycle impacts of company operations.

Managing this issue well will help restaurants

to maintain food quality, manage the food

safety issue, and reduce reputational risks.

Company performance in this area can be

analyzed in a cost-beneficial way internally and

externally through the following direct or

indirect performance metrics (see Appendix III

for metrics with their full detail):

• Percentage of food purchased that

meets environmental and social

sourcing standards, percentage third-

party certified; • Percentage of eggs purchased from

cage-free sources, and percentage of

pork purchased from gestation crate-

free sources; and • Discussion of strategy to manage

environmental and social risks within

the supply chain.

Evidence

As global companies, restaurant chains have to

navigate the evolving world of customer

preference and government regulations around

the use of GMOs, antibiotics, and hormones. In

Europe, customers are more resistant to GMOs,

and the use of antibiotics for any purpose other

than disease treatment or prevention is

prohibited in all products. In the U.S., GMOs

are generally accepted, and the use of

antibiotics to increase growth of chickens is

commonplace. In December 2013, the FDA

announced implementing “a voluntary plan

with the industry to phase out the use of

certain antibiotics for enhanced food

production.”169 This is comparable to

McDonald’s 2003 antibiotic policy regarding its

direct suppliers.170, 171

The trend of restaurant companies turning to

sustainability and transparency of their supply

chains is mostly driven by the market demand.

Since the 1990s and 2000s, fast food

restaurants have earned a reputation for having

food that may have negative long-term effects

due to its poor nutritional value. Therefore,

companies in the industry increasingly turn

their efforts to ensuring high standards in

sourcing their supplies. They also seek high

standards in providing consumers with the

information that helps them to make decisions

about their meal choices. For example, in

Australia, McDonald’s allows its customers to

track back the meat used in their burgers or

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Chicken McNuggets to the farms it came from

using an app.172

Many restaurant chains have initiated

sustainable sourcing programs. In 2013,

McDonald’s started using only seafood that is

certified by the Marine Stewardship Council to

be sustainably sourced.173 In January 2014,

McDonald’s made a pledge to start purchasing

verified sustainable beef by 2016. To determine

sustainable sources of beef, region-specific

standards will be used. Those standards require

development of sustainable beef metrics and

indicators. The McDonald’s’ beef suppliers will

be asked to follow the principles developed by

the Global Roundtable for Sustainable Beef,

with indicators that are specific to their

regions.174 The company is also investing

$6.5 million over five years to help Guatemalan

coffee growers increase production from

sustainable farms.175 By 2011, 86 percent of the

coffee bought by Starbucks was responsibly

grown and ethically traded along guidelines

developed by the company in collaboration

with Conservation International.176 By 2015, the

company is committed to sourcing 100 percent

of its coffee from ethical sources. In February

2013, Starbucks agreed to purchase 100

percent of its palm oil from certified sustainable

suppliers. 177 There have been several

shareholder resolutions regarding sustainable

sourcing of palm oil. In 2013, shareholders of

Darden, Dunkin’ Brands, Starbucks, and Yum!

Brands filed sustainable palm oil resolutions.178

According to a World Bank report, 62 percent

of seafood consumed globally will be farm-

raised by 2030. To meet growing demand for

affordable and nutritious seafood, companies

in the industry need to develop relationships

with fisheries and aquaculture. Sustainable and

environmentally responsible fish farming

practices within their supply chain are likely to

help restaurant operators to ensure long-term

supply of seafood and improve demand from

customers.179 In 2011, Darden announced its

commitment to rebuilding troubled commercial

reef fish fisheries. The company regularly

evaluates purchasing practices to ensure they

support and encourage sustainable fisheries. As

of 2013, 100 percent of shrimp, 85 percent of

salmon, and 80 percent of tilapia and catfish

served at Darden’s restaurants satisfied the

Global Aquaculture Alliance Standards.180

As this evidence suggests, it is important for

companies in the Restaurants industry to

engage suppliers in order to ensure food

quality and reduce environmental and social

impacts along the value chain. It would allow

them to avoid issues that may affect

restaurants’ reputation and license to operate

as well as ability of continuous sourcing. For

example, Yum! Brands has been struggling in

China partly due to a government investigation

into improper antibiotic use by some chicken

suppliers. For fiscal year 2013, Yum! Brands

experienced a nine percent decline in earnings

per share due largely to lower sales in China.

Those sales were caused by the poultry supply

incident.181, 182 China accounts for half of Yum!

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Brands’ revenue and 44 percent of its operating

profits. Same-store sales in China fell 16

percent in 2013.183 In its 2012 Form 10-K,

Yum! Brands acknowledges the impact of

negative media attention on the chicken

antibiotic issue: “KFC China sales in the last

two weeks of the year were significantly

impacted by the intense media attention

surrounding an investigation by the Shanghai

FDA (SFDA) into poultry supply management at

our China Division.”184

Working conditions in the supply chain may

also play a role in customers’ purchasing

decisions. Taco Bell and Yum! Brands have

joined the Fair Food Program, which aims to

improve conditions for Florida’s tomato farm

workers. By signing onto the program,

restaurants, food retailers, and food service

companies have agreed to pay a premium for

tomatoes (one cent more per pound) which

would go towards increasing wages for

farmworkers. Wendy’s has been receiving

negative media attention for refusing to join

the program.185 This example illustrates how

companies that do not disclose their

commitment to ensuring labor rights in the

supply chain can face reputational risks.

“Food with Integrity” is one of Chipotle’s

guiding principles. The following quote from

Chipotle’s FY 2012 10-K summarizes the

challenges and argument for sustainable supply

chain management: “We do, however, face

challenges associated with pursuing Food With

Integrity. There are higher costs and other risks

associated with purchasing ingredients grown

or raised with an emphasis on quality,

sustainability and other responsible

practices.”186 In addition, “we believe that (…)

consumers are increasingly concerned about

where their food comes from and how it is

raised (…). We believe that increased demand

over the long term for the types of meat and

produce items we strive to serve will continue

to attract the interest and capital investment of

larger farms and suppliers.”187

Value Impact

Industry trends suggest that supply chain

management is crucial for restaurant

companies to protect their reputations and

improve revenues. Consumers are becoming

increasingly aware of the health, social, and

environmental impact of food sourcing. Thus,

companies that can ensure food safety and

ethical sourcing in their supply chains can

enhance their brand image and market share.

On the downside, violations of food safety and

other regulations by a restaurant’s suppliers are

likely to adversely affect reputation. They

impact sales in owned and operated facilities,

or royalties from franchised operations.

Performance in this area can be assessed

through the percentage of food supply sourced

in conformance with environmental and social

standards, as well as conformance with animal

welfare standards and best practices.

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REFERENCES

1 “Jobs & Careers Powerhouse.” National Restaurant Association. Industry Impact. Accessed November 20, 2014. http://www.restaurant.org/Industry-Impact/Employing-America/Jobs-Careers-Powerhouse.

2 Spencer, Matthew E. “Industry Analysis: Restaurant.” Value Line. Accessed December 9, 2013, http://www.valueline.com/Stocks/Industry_Report.aspx?id=7256.

3 Brennan, Andy. “IBISWorld Industry Report 72221a: Fast Food Restaurants in the US.” IBISWorld, July 2013. 4 Brennan, Andy. “IBISWorld Industry Report 72211a: Chain Restaurants in the US.” IBISWorld, October 2013.

5 Bloomberg Professional service, accessed October 1, 2014, using the BICS <GO> command. The data represents global revenues of companies listed on global exchanges and traded over-the-counter (OTC) from the Restaurants industry, using Levels 3 and 5 of the Bloomberg Industry Classification System. 6 Author’s calculation based on data from Bloomberg Professional service, accessed October 6, 2014 using Equity Screen (EQS) for U.S.-listed companies (including those traded primarily OTC) that generate at least 20 percent of revenue from their Restaurants segment and for which the Restaurants industry is a primary SICS industry. 7 First Research, Excerpt from “Restaurants Industry Profile.” November 25, 2013. Accessed December 9, 2013, http://www.firstresearch.com/Industry-Research/Restaurants.html 8 “Facts At A Glance,” National Restaurant Association. Accessed December 9, 2013, http://www.restaurant.org/News-Research/Research/Facts-at-a-Glance.

9 “Restaurants,” Bloomberg Industry Leaderboard. Accessed December 9, 2013, http://www.bloomberg.com/visual-data/industries/detail/restaurants.

10 Bruno, Alfonzo et al. “Consumer Discretionary: Chipotle Mexican Grill.” Krause Fund Research, November 13, 2012. Accessed December 20, 2013. http://tippie.uiowa.edu/krause/fall2012/cmg_f12.pdf. 11 Spencer, Matthew E. “Industry Analysis: Restaurant,” Value Line. Accessed December 9, 2013, http://www.valueline.com/Stocks/Industry_Report.aspx?id=7256. 12 First Research, Excerpt from “Restaurants Industry Profile.” November 25, 2013. Accessed December 9, 2013, http://www.firstresearch.com/Industry-Research/Restaurants.html. 13 Spencer, Matthew E. “Industry Analysis: Restaurant,” Value Line. Accessed December 9, 2013, http://www.valueline.com/Stocks/Industry_Report.aspx?id=7256. 14 “Restaurant Performance Index,” National Restaurant Association. December 2, 2013. Accessed December 9, 2013, http://www.restaurant.org/News-Research/Research/Restaurants-The-Economy/RPI. 15 Brennan, Andy. “IBISWorld Industry Report 72211a: Chain Restaurants in the US.” IBISWorld, October 2013.

16 Brennan, Andy. “IBISWorld Industry Report 72221a: Fast Food Restaurants in the US.” IBIS World, July 2013. 17 Brennan, Andy. “IBISWorld Industry Report 72211a: Chain Restaurants in the US.” IBISWorld, October 2013.

18 Brennan, Andy. “IBISWorld Industry Report 72211a: Chain Restaurants in the US.” IBISWorld, October 2013.

19 Bruno, Alfonzo et al. “Consumer Discretionary: Chipotle Mexican Grill.” Krause Fund Research, November 13, 2012. Accessed December 20, 2013. http://tippie.uiowa.edu/krause/fall2012/cmg_f12.pdf.

20 Gibson, Richard. “U.S. Restaurants Push Abroad.” The Wall Street Journal. Last modified June 18, 2008. Accessed December 21, 2013. http://online.wsj.com/news/articles/SB121376250284483647.

21 “Lower-Calorie Foods: It’s Just Good Business.” Hudson Institute, February 2013. Accessed December 9, 2013, http://www.hudson.org/files/publications/lower_calorie_foods.pdf.

22 “Restaurants industry Trends.” NPD Group. Accessed December 9, 2013, http://restaurantindustrytrends.com/snapshots.html.

23 Brennan, Andy. “IBISWorld Industry Report OD4319: Bakery Cafes in the US,” IBISWorld Report, October 2013. 24“Restaurants.” Bloomberg Industry Leaderboard. Accessed December 9, 2013, http://www.bloomberg.com/visual-data/industries/detail/restaurants.

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25 Brennan, Andy. “IBISWorld Industry Report 72221a: Fast Food Restaurants in the US.” IBISWorld Report, July 2013

26 “USDA and EPA Launch US Food Waste Challenge.” U.S. Department of Agriculture. June 4, 2013. Accessed December 9 , 2013, http://www.usda.gov/wps/portal/usda/usdahome?contentid=2013/06/0112.xml. 27 “New York Introduces Legislation to Ban Use Of Polystyrene,” National Restaurant Association, June 14, 2013. Accessed December 9, 2013. http://www.restaurant.org/News-Research/News/New-York-pols-introduce-bill-to-ban-polystyrene.

28 “Implement Section 4205 of the Patient Protection and Affordable Care Act.” U.S. Food and Drug Administration. Accessed February 7, 2014. http://www.accessdata.fda.gov/FDATrack/track-proj?program=healthcare-reform&id=ACA-4205-Implementation; Federal Register. The Daily Journal of the United States Government. “Food Labeling: Nutrition Labeling of Standard Menu Items in Restaurants and Similar Retail Food Establishments.” Spring 2014. Accessed October 28, 2014. https://www.federalregister.gov/regulations/0910-AG57/food-labeling-nutrition-labeling-of-standard-menu-items-in-restaurants-and-similar-retail-food-estab. 29 Thorn, Brett. “How The Proposed FDA Trans Fat Ban Could Affect Restaurants.” Restaurant News, November 26, 2013. http://nrn.com/health-amp-nutrition/how-proposed-fda-trans-fat-ban-could-affect-restaurants.

30 Wong, Venessa. “Obamacare’s Fast-Food Menu: Cutting Workers’ Hours for Some, Slower Growth for Others.” Bloomberg BusinessWeek, October 3, 2013. Accessed February 7, 2014. http://www.businessweek.com/articles/2013-09-20/obamacares-fast-food-menu-cutting-workers-hours-for-some-slower-growth-for-others. 31 Chipotle Mexican Grill, Inc. FY2013 Form 10-K for the Fiscal Year Ending December 31, 2013 (filed February 5, 2014). 32 “2013 Full-service Outlook.” National Restaurant Association. Accessed December 9, 2013, http://www.restaurant.org/News-Research/Research/Forecast-2013/2013-Fullservice-outlook. 33 “Limited-service Outlook.” National Research Association. Accessed December 9, 2013, http://www.restaurant.org/News-Research/Research/Forecast-2013/Limited-service-outlook. 34 “Wage, Sick Leave, Environmental Issues Top State Agendas.” National Restaurant Association. January 23, 2013. Accessed December 9, 2013. http://www.restaurant.org/News-Research/News/Wage,-sick-leave,-environmental-issues-top-state-a.

35 “About OSHA.” Occupational Health and Safety Administration. Accessed December 9, 2013. https://www.osha.gov/about.html. 36 “Wage and Hour Division (WHD).” U.S. Department of Labor. Accessed December 9, 2013, http://www.dol.gov/whd/flsa/index.htm. 37 The White House. Raise the Wage. Accessed November 18, 2014. http://www.whitehouse.gov/raise-the-wage. 38 “What’s Hot 2014 Culinary Forecast.” National Restaurant Association. Accessed January 2, 2014.

http://www.restaurant.org/Downloads/PDFs/News-Research/WhatsHot/What-s-Hot-2014.pdf. 39 “Watching water. A guide to evaluating corporate risks in a thirsty world,” JPMorgan Global Equity Research, March 31, 2008. 40 “ENERGY STAR Guide for Restaurants.” U.S. Environmental Protection Agency. November 2010. Accessed December 12, 2014, http://www.energystar.gov/ia/business/small_business/restaurants_guide.pdf. 41 U.S. Energy Information Administration. Commercial Buildings Energy Consumption Survey (CBECS). 2003 CBECS Survey Data. “Table C13. Total Electricity Consumption and Expenditures for Non-Mall Buildings, 2003.” Accessed October 27, 2014. http://www.eia.gov/consumption/commercial/data/2003/pdf/c13.pdf. 42 U.S. Energy Information Administration. Commercial Buildings Energy Consumption Survey (CBECS). 2003 CBECS Survey Data. “Table E6. Electricity Consumption (kWh) Intensities by End Use for Non-Mall Buildings, 2003.” Accessed October 27, 2014. http://www.eia.gov/consumption/commercial/data/2003/pdf/e06.pdf.

43 U.S. Environmental Protection Agency. ENERGY STAR Portfolio Manager. “Energy Use Intensity by Property Type.” September 2014. Accessed October 27, 2014. https://portfoliomanager.energystar.gov/pdf/reference/US%20National%20Median%20Table.pdf.

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44 “Managing Energy Costs in Restaurants,” National Grid. 2002. http://www.nationalgridus.com/non_html/shared_energyeff_restaurants.pdf.

45 Cohen, Deborah. “Incentives for Green”, QSR Magazine, March 2010. Accessed January 31, 2014, http://www.qsrmagazine.com/funding-growth/incentives-green. 46 “Partner Spotlight: Blodgett Oven Company.” ENERGY STAR Commercial Food Service Newsletter, October 2009. http://www.energystar.gov/ia/news/email/EnergyStarCFSNewsletterOct09.html. 47 "Energy Conservation & Renewable Energy." Starbucks. Accessed February 4, 2014. http://www.starbucks.com/responsibility/environment/energy. 48 "Energy Efficiency." Darden Restaurants. Accessed February 4, 2014. http://www.darden.com/sustainability/default.aspx?lang=en&page=planet&section=energy-efficiency.

49 "GOAL: REDUCE ENERGY CONSUMPTION IN COMPANY-OWNED RESTAURANTS 15% BY 2015." Yum! Brands. Accessed February 4, 2014. http://www.yumcsr.com/environment/energy-efficiency.asp.

50 “National Top 100.” U.S. Environmental Protection Agency. September 19, 2013. Accessed December 9, 2013, http://www.epa.gov/greenpower/toplists/top100.htm.

51 “Saving Water in Restaurants.” U.S. Environmental Protection Agency. November 2012. http://www.epa.gov/watersense/commercial/docs/factsheets/restaurants_fact_sheet_508.pdf.

52 “Energy & Water Efficiency.” National Restaurant Association. Accessed December 17, 2013.

http://www.restaurant.org/Industry-Impact/Conservation/Energy-Water-Efficiency.

53 “End Uses of Water in Restaurants.” U.S. Environmental Protection Agency. Accessed October 20, 2014. http://www.epa.gov/watersense/commercial/types.html.

54 “Saving Water in Restaurants.” U.S. Environmental Protection Agency. November 2012. http://www.epa.gov/watersense/commercial/docs/factsheets/restaurants_fact_sheet_508.pdf.

55 Russo, Michele A. and Donna Laquidara-Carr. “Water Efficiency in Green Buildings Leads to Energy Savings & Bottom Line Improvements.” McGraw Hill Construction, July 2009. http://www.dodge.construction.com/Analytics/marketdynamics/2009/july_feature2.asp.

56 “Saving Water in Restaurants.” U.S. Environmental Protection Agency. November 2012. http://www.epa.gov/watersense/commercial/docs/factsheets/restaurants_fact_sheet_508.pdf.

57 “Energy & Water Efficiency.” National Restaurant Association. Accessed December 17, 2013.

http://www.restaurant.org/Industry-Impact/Conservation/Energy-Water-Efficiency.

58 “2013 CDP Water Disclosure 2013 Information Request: Darden Restaurants, Inc.” CDP. Accessed October 21, 2014. http://www.darden.com/sustainability/downloads/cdp-2013-water-disclosure-cdp-2013-information-request.pdf. 59 “McDonald’s Corporate Social Responsibility & Sustainability Report 2012 – 2013.” Accessed October 21, 2014. http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/2.0/pdfs/2012_2013_csr_report.pdf 60 “Water Conservation.” Yum! Brands 2012 Corporate Sustainability Report, 2013. Accessed December 17, 2013. http://www.yumcsr.com/environment/water-conservation.asp.

61 “Darden Sustainability 2012 Report.” Darden Restaurants, 2013. Accessed December 17, 2013. http://www.darden.com/sustainability/downloads/2012-gri-full.pdf.

62 “Food Waste Facts.” United Nations Environmental Programme. Accessed December 18, 2013. http://www.unep.org/wed/quickfacts/.

63 Gunders, Dana. “Wasted: How America is Losing Up to 40 Percent of Its Food from Farm to Fork to Landfill.” Natural Resources Defense Council, August 2012. http://www.nrdc.org/food/files/wasted-food-ip.pdf.

64 “Global Food Losses and Food Waste.” Food and Agriculture Organization. 2011. http://www.fao.org/docrep/014/mb060e/mb060e00.pdf.

65 Gunders, Dana. “Wasted: How America is Losing Up to 40 Percent of Its Food from Farm to Fork to Landfill.” Natural Resources Defense Council, August 2012. http://www.nrdc.org/food/files/wasted-food-ip.pdf.

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66 Energy and Environmental Affairs. “Patrick Administration Announces Plan to Ban Disposal of Commercial Food Waste.” Mass.gov, July 10, 2013. Accessed January 2, 2014. http://www.mass.gov/eea/pr-2013/commercial-food-waste-ban.html.

67 Watson, Bruce. “What the Massachussets food waste ban means for businesses.” The Guardian, March 4, 2014. Accessed October 21, 2014. http://www.theguardian.com/sustainable-business/massachussetts-food-waste-ban-zero-percent?CMP=new_1194.

68 Plumer, Brad. “How the U.S. manages to waste $165 billion in food each year.” The Washington Post, August 22, 2012. Accessed November 2, 2014. http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/22/how-food-actually-gets-wasted-in-the-united-states/; U.S. Environmental Protection Agency. “Food Waste Reduction and Prevention.” Accessed November 2, 2014. http://www.epa.gov/wastes/conserve/foodwaste/fd-reduce.htm; Freedman, Brochado C. “Reducing portion size reduces food intake and plate waste.” The National Center for Biotechnology Information, Accessed November 2, 2014. http://www.ncbi.nlm.nih.gov/pubmed/20035274.

69 “Minimizing and Diverting Restaurant Waste.” McDonald’s Sustainability. Accessed November 19, 2014. http://www.aboutmcdonalds.com/mcd/sustainability/planet/minimizing-waste.html. 70 Bernstein, Jeffrey A. et al. “Commodity Cost Tracker – Dec ’13; Basket Flat…Possible Deflation in ’14?” Barclays Equity Research, December 12, 2013.

71 Tarantino, David E., et al. “The Cheesecake Factory Incorporated (CAKE) Good Start to 2013; Raising Estimates and Price Target.” Baird Equity Research, April 25, 2013.

72 Bernstein, Jeffrey A. et al. “The Cheesecake Factory Mgmt Meetings… Top 5 Takeaways” Barclays Equity Research, April 30, 2013.

73 Regan, Nicole Miller and Joshua C. Long. “Cheesecake Factory Highlights From 32nd Annual Piper Jaffray Consumer Conference.” PiperJaffray, June 5, 2012.

74 Difrisco, Matthew, and Phan Le. “CAKE: NDR takeaways; greater confidence in NT, raising

estimates; BUY.” Lazard Capital Markets Company Notes, November 30, 2011. 75 Cracker Barrel Old Country Store. FY2012 Form 10-K for the Fiscal Year Ending August 3, 2012 (filed September 25, 2012). 76 Starbucks Corp. FY2012 Form 10-K for the Fiscal Year Ending September 30, 2012 (filed November 16, 2012). 77 Brinker Intl. FY 2012 Form 10-K for the Fiscal Year Ending June 27, 2012 (filed August 27, 2012).

78 “Burger King Franchise Finds Whopper Waste and Recycling Savings.” Environmental Leader, June 9, 2014. Accessed October 21, 2014. http://www.environmentalleader.com/2014/06/09/burger-king-franchise-finds-whopper-waste-and-recycling-savings/.

79 Harvey, Fiona. “Food waste: Plenty of guilt and a very heavy footprint.” Financial Times, January 26, 2010. 80 Scott, Mike. “Food and drinks companies are seeing worth from their waste.” The Guardian, July 17, 2013. Accessed October 21, 2014. http://www.theguardian.com/sustainable-business/food-drinks-companies-value-from-waste. 81 “Waste Recovery and Recycling.” Yum! Brands 2012 Corporate Social Responsibility Report. Accessed February 7, 2014. http://www.yumcsr.com/environment/waste-recovery.asp. 82 “Darden Citizenship 2013 Update.” Darden Restaurants. 2013

83 “Engaging Our Communities With Sustainability.” Yum! Brands 2012 Corporate Social Responsibility Report. Accessed February 6, 2014, http://www.yumcsr.com/environment/engaging-communities.asp.

84 “Foodservice Disposables - Industry Market Research, Market Share, Market Size, Sales, Demand Forecast, Market Leaders, Company Profiles, Industry Trends.” Freedonia Group. September, 2013. Accessed December 18, 2013. http://www.freedoniagroup.com/Foodservice-Disposables.html.

85 “Bans Across the U.S.,” No Foam Chicago. Accessed December 18, 2013. http://nofoamchicago.org/BansAcrossUS.html.

86 “Polystyrene: Local Ordinances.” Californians Against Waste. Accessed December 30, 2013. http://www.cawrecycles.org/issues/plastic_campaign/polystyrene/local.

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87 "Starbucks Introduces $1 Reusable Cup to Cut down on Waste." Eatocracy, CNN Blogs, January 3, 2013. Accessed December 30, 2013. http://eatocracy.cnn.com/2013/01/03/starbucks-introduces-1-reusable-cup-to-cut-down-on-waste/.

88 “Goals & Progress: Reusable Cups.” Starbucks, 2013. Accessed December 30, 2013. http://www.starbucks.com/responsibility/global-report/environmental-stewardship/reusable-cups.

89 “Factors Affecting Safe Food Preparation by Food Workers and Managers.” Centers for Disease Control and Prevention. Accessed December 19, 2013. http://www.cdc.gov/nceh/ehs/EHSNet/plain_language/Factors-Affecting-Safe-Food-Prep-by-Food-Workers-Mgrs.htm. 90 Arnot, Charlie. “Breaking Through Consumer Skepticism: The Center for Food Integrity 2013 Consumer Trust Research Report.” The Center for Food Integrity, 2013. Webinar.

91 Darden Restaurants. FY2013 Form 10-K for the Fiscal Year Ending May 24, 2014 (filed July 18, 2014). 92 “China Broadcaster Says KFC’s Ice Dirtier Than Toilet Water.” The Wall Street Journal, July 23, 2013. Accessed December 19, 2013. http://blogs.wsj.com/chinarealtime/2013/07/23/broadcaster-says-kfcs-ice-dirtier-than-toilet-water/.

93 “Cyclospora Illnesses Reach 646 in 24 States.” Food Safety News, September 10, 2013. Accessed November 19, 2014. http://www.foodsafetynews.com/2013/09/cyclospora-illnesses-reach-646-in-24-states/#.VGzwdMl5V3g.

94 Mattera, Phillip. “Darden Restaurants: Corporate Rap Sheet.” Corporate Research Project. Accessed November 19, 2014. http://www.corp-research.org/darden. 95 Stewart, Mike. “McDonalds Outlet in WA Fined $180,000 for Food Safety Breaches.” Australian Institute of Food Safety, November 23, 2012. Accessed December 23, 2013. http://www.foodsafety.com.au/2012/11/mcdonalds-outlet-in-wa-fined-180000-for-food-safety-breaches/. 96 Wendy’s Co. FY2012 Form 10-K for the Fiscal Year Ending December 30, 2012 (filed February 28, 2013).

97 Goh, Branda and Paul Carsten. “Yum cuts ties to owner of China meat plant after scandal.” Reuters, July 23, 2014. Accessed October 21, 2014. http://www.reuters.com/article/2014/07/23/us-china-food-idUSKBN0FS00120140723; Burkitt, Laurie. “McDonald's Meat Supplier Pulls Chinese Plant's Products.” The Wall Street Journal, July 27, 2014. Accessed October 21, 2014. http://online.wsj.com/articles/mcdonalds-meat-supplier-pulling-all-products-made-by-shanghai-husi-unit-1406445545.

98 “McDonald’s Pulls Meat From China Restaurants.” Bloomberg News, July 28, 2014. Accessed November 20, 2014. http://www.bloomberg.com/news/2014-07-28/mcdonald-s-supplier-recalls-meat-in-expired-food-scandal.html. 99 “McDonald's Faces Declining Sales In Asia After China Food Scandal.” Forbes, September 11, 2014. Accessed October 21, 2014. http://www.forbes.com/sites/greatspeculations/2014/09/11/mcdonalds-faces-declining-sales-in-asia-after-china-food-scandal/. 100 Cooper, Chris. “McDonald’s Japan Predicts $157 Million Loss on Meat Scare.” Bloomberg, October 7, 2014. Accessed October 21, 2014. http://www.bloomberg.com/news/2014-10-07/mcdonald-s-japan-predicts-157-million-loss-on-meat-scare.html. 101 “McDonald's Faces Declining Sales In Asia After China Food Scandal.” Forbes, September 11, 2014. Accessed October 21, 2014. http://www.forbes.com/sites/greatspeculations/2014/09/11/mcdonalds-faces-declining-sales-in-asia-after-china-food-scandal/.

102 Lee, Danny. “Meat scandal sees McDonald's sales drop 7.2 per cent in emerging markets.” South China Morning Post, August 9, 2014. Accessed October 21, 2014. http://www.scmp.com/news/hong-kong/article/1569473/mcdonalds-sales-forecast-risk-after-china-food-scare.

103 Akkinepalli, Ravi. “Food and Beverages Sustainability Industry Report.” The Supply Chain Resource Cooperative, June 18, 2012. Accessed January 2, 2014. http://scm.ncsu.edu/scm-articles/article/food-and-beverages-sustainability-industry-report. 104 “Overweight and Obesity in the US,” Food Research and Action Center. Accessed October 28, 2014. http://frac.org/initiatives/hunger-and-obesity/obesity-in-the-us/. 105 Drewnowski, Adam and Colin D Rehm. “Consumption of added sugars among US children and adults by food purchase location and food source.” The American Journal of Clinical Nutrition. First published July 16, 2014. Accessed October 28, 2014. http://ajcn.nutrition.org/content/early/2014/07/16/ajcn.114.089458.abstract.

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106 Sherlock, Cushla. “Is Sugar Turning the Economy Sour?” Credit Suisse. Health Care. Accessed October 28, 2014. https://www.credit-suisse.com/us/en/news-and-expertise/topics/health-care.article.html/article/pwp/news-and-expertise/2013/09/en/is-sugar-turning-the-economy-sour.html.

107 “Adult Obesity Facts.” Centers for Disease Control and Prevention. Accessed October 28, 2014. http://www.cdc.gov/obesity/data/adult.html.

108 “Sugar Consumption Accounts for a Big Chunk of Healthcare Costs.” Mercola.com, March 29, 2014. Accessed October 28, 2014. http://articles.mercola.com/sites/articles/archive/2014/03/29/sugar-consumption-healthcare-costs.aspx#_edn1. 109 Lee, Brianna. “Nutritional quality at fast-food restaurants still needs improvement.” EurekAlert! May 7, 2013. Accessed October 28, 2014. http://www.eurekalert.org/pub_releases/2013-05/ehs-nqa050313.php; Castillo, Michelle. “Fast food's nutritional value still needs to shape up.” CBS News, May 8, 2013. Accessed October 28, 2014. http://www.cbsnews.com/news/fast-foods-nutritional-value-still-needs-to-shape-up/.

110 Author’s calculation based on data from Bloomberg Professional service, accessed October 28, 2014, using the BICS <GO> command. The data represents global revenues of companies listed on global exchanges and traded over-the-counter (OTC) from the Restaurants industry, using Levels 3 and 5 of the Bloomberg Industry Classification System.

111 Cheeseman, Gina-Marie. “Can the Fast Food Industry Ever Be Sustainable?” Triple Pundit, August 25, 2010. Accessed December 20, 2013. http://www.triplepundit.com/2010/08/can-the-fast-food-industry-ever-be-sustainable/.

112 Harris, Jennifer L. et al. “Measuring Progress in Nutrition and Marketing to Children and Teens.” Yale Rudd Center for Food Policy & Obesity, 2013. http://www.fastfoodmarketing.org/media/FastFoodFACTS_Report.pdf.

113 “Food Labeling: Nutrition Labeling of Standard Menu Items in Restaurants and Similar Retail Food Establishments.” Federal Register. The Daily Journal of the United States Government. Spring 2014. Accessed October 28, 2014. https://www.federalregister.gov/regulations/0910-AG57/food-labeling-nutrition-labeling-of-standard-menu-items-in-restaurants-and-similar-retail-food-estab. 114 Jargon, Julie. “Calorie Counts Come Down at Restaurants.” The Wall Street Journal, October 8, 2014. Accessed October 31, 2014. http://online.wsj.com/articles/calorie-counts-come-down-at-restaurants-1412741042?mod=WSJ_hpp_MIDDLENexttoWhatsNewsForth. 115 “FTC Releases Follow-Up Study Detailing Promotional Activities, Expenditures, and Nutritional Profiles of Food Marketed to Children and Adolescents.” Federal Trade Commission. News Release, December 21, 2012. Accessed December 20, 2013. http://www.ftc.gov/news-events/press-releases/2012/12/ftc-releases-follow-study-detailing-promotional-activities. 116 Harris, Jennifer L. et al. “Measuring Progress in Nutrition and Marketing to Children and Teens.” Yale Rudd Center for Food Policy & Obesity, 2013. http://www.fastfoodmarketing.org/media/FastFoodFACTS_Report.pdf. 117 “Children's Food and Beverage Advertising Initiative.” Council of Better Business Bureaus. The National Partner Program. Accessed November 19, 2014. http://www.bbb.org/council/the-national-partner-program/national-advertising-review-services/childrens-food-and-beverage-advertising-initiative/.

118 Ustjanauskas A. E., J. L. Harris and M. B. Schwartz. “Food and beverage advertising on children's web sites.” Rudd Center for Food Policy and Obesity, Yale University, New Haven, CT, USA. Received 15 January 2013; revised 30 April 2013; accepted 24 May 2013. Accessed November 19, 2014.

119 Daniells, Stephen. “Over 95% of food and beverage ads on children's programming are unhealthy products: Study.” Food Navigator-USA, December 20, 2013. Accessed November 19, 2014. http://www.foodnavigator-usa.com/Manufacturers/Over-95-of-food-and-beverage-ads-on-children-s-programming-are-unhealthy-products-Study?utm_source=copyright&utm_medium=OnSite&utm_campaign=copyright.

120 Harris, Jennifer L. et al. “Measuring Progress in Nutrition and Marketing to Children and Teens.” Yale Rudd Center for Food Policy & Obesity, 2013. http://www.fastfoodmarketing.org/media/FastFoodFACTS_Report.pdf.

121 Yum! Brands. FY2013 Form 10-K for the Fiscal Year Ending December 28, 2013 (filed February 18, 2014).

122 “Children's Food and Beverage Advertising Initiative.” Council of Better Business Bureaus. Accessed December 20, 2013. http://www.bbb.org/council/the-national-partner-program/national-advertising-review-services/childrens-food-and-beverage-advertising-initiative/. 123 Journal of Sustainable Finance & Banking. The Cornerstone, Volume I, no. Issue 12 (2014). Accessed October 31, 2014.

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124 Horovitz, Bruce. “Taco Bell promises better nutrition — by 2020.” USA Today, April 10, 2013. Accessed October 31, 2014. http://www.usatoday.com/story/money/business/2013/04/10/taco-bell-nutrition-government-guidelines/2070477/.

125 Jargon, Julie. “Calorie Counts Come Down at Restaurants.” The Wall Street Journal, October 8, 2014. Accessed October 31, 2014. http://online.wsj.com/articles/calorie-counts-come-down-at-restaurants-1412741042?mod=WSJ_hpp_MIDDLENexttoWhatsNewsForth.

126 “Lower-Calorie Foods: It’s Just Good Business.” Hudson Institute. February 2013. Accessed December 9, 2013, http://www.hudson.org/files/publications/lower_calorie_foods.pdf.

127 National Restaurant Association. “What’s Hot 2014 Culinary Forecast.” Accessed January 2, 2014.

http://www.restaurant.org/Downloads/PDFs/News-Research/WhatsHot/What-s-Hot-2014.pdf.

128 Spencer, Matthew E. “Industry Analysis: Restaurant.” Value Line. Accessed December 9, 2013, http://www.valueline.com/Stocks/Industry_Report.aspx?id=7256.

129 “Industry Center - Restaurants.” Yahoo! Finance. Accessed December 9, 2013, http://biz.yahoo.com/ic/profile/eating_1442.html. 130 “Forecast 2013.” National Restaurant Association. Accessed December 9, 2013, http://www.restaurant.org/News-Research/Research/Forecast-2013. 131 “2013 Restaurants industry Pocket Factbook.” National Restaurant Association. Accessed December 9, 2013, http://www.restaurant.org/Downloads/PDFs/News-Research/Factbook2013_LetterSize.pdf. 132 “Developments and challenges in the hospitality and tourism sector.” International Labour Organization. November, 2010. Accessed January 22, 2014. p. 11. 133 J. Boardman and C. Barbato: Review of socially responsible HR and labour relations practice in international hotel chains, Sectoral Activities Department, (Working Paper No. 267, 2008, Geneva, ILO). p. 12 134 J. Boardman and C. Barbato: Review of socially responsible HR and labour relations practice in international hotel chains, Sectoral Activities Department, (Working Paper No. 267, 2008, Geneva, ILO). p.17

135 Hurwitz, Sheralee S. “PPACA Large Employer Calculation Threshold.” Foster Swift Employment, Labor & Benefits Quarterly, summer 2011. Accessed October 28, 2014. http://www.fosterswift.com/publications-PPACA-Large-Employer-Calculation-Threshold.html.

136 Desilver, Drew. “Who Makes Minimum Wage?” Pew Research Center. September 8th, 2014. Accessed October 11th, 2014. http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-minimum-wage/

137 Dudley, Renee. “Wal-Mart Says ‘Looking’ at Support of Minimum Wage Raise.” Bloomberg. February 19th, 2014. Accessed October 19th, 2014. http://www.bloomberg.com/news/2014-02-19/wal-mart-says-looking-at-support-of-federal-minimum-wage-rise.html.

138 Resnikoff, Ned. “Franchise trade group still opposes minimum wage boost.” MSNBC, June 25, 2014. Accessed October 22, 2014. http://www.msnbc.com/msnbc/franchise-trade-group-still-opposes-minimum-wage-boost. 139 Wesley, Lowery. “Senate Republicans block minimum wage increase bill.” The Washington Post. April 30th, 2014. Accessed September 4th, 2014. http://www.washingtonpost.com/blogs/post-politics/wp/2014/04/30/senate-republicans-block-minimum-wage-increase-bill/. 140 Darden Restaurants. FY2013 Form 10-K for the Fiscal Year Ending May 24, 2014 (filed July 18, 2014).

141 Chipotle Mexican Grill. FY2013 Form 10-K for the Fiscal Year Ending December 31, 2013 (filed February 5, 2014).

142 Yum! Brands. FY2013 Form 10-K for the Fiscal Year Ending December 28, 2013 (filed February 18, 2014). 143 McGregor, Jena. “Fast food workers are staying longer on the job- and wanting more.” The Washington Post, August 29, 2013. Accessed December 30, 2013. http://www.washingtonpost.com/blogs/on-leadership/wp/2013/08/29/fast-food-workers-are-staying-longer-on-the-job-and-wanting-more/ 144 Huebsch, Russell. “Organized Labor in the Restaurants industry.” Houston Chronicle, Small Business, Accessed December 2, 2014. http://smallbusiness.chron.com/organized-labor-restaurant-industry-35959.html

145 Greenhouse, Steven. “McDonald’s Ruling Could Open Door for Unions.” The New York Times, July 29, 2014. Accessed December 2, 2014. http://www.nytimes.com/2014/07/30/business/nlrb-holds-mcdonalds-not-just-

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franchisees-liable-for-worker-treatment.html?_r=1; Penn, Ben. “To Unions, McDonald's Joint Employer Status No Slam Dunk, as Fast Food Push Intensifies.” Bloomberg BNA, September 18, 2014. Accessed December 2, 2014. http://www.bna.com/unions-mcdonalds-joint-n17179895030/.

146 Giammona, Craig. “Fast-Food Workers Fighting for Higher Wages Plan Strike.” Bloomberg, November 28, 2014. Accessed December 2, 2014. http://www.bloomberg.com/news/2014-11-29/fast-food-workers-fighting-for-higher-wages-plan-strike.html.

147 Chipotle Mexican Grill, Inc. FY2013 Form 10-K for the Fiscal Year Ending December 31, 2013 (filed February 5, 2014).

148 Choi, Candice. “Darden Restaurants Says It Won't Bump Full-Time Workers To Part-Time Status After Negative Publicity.” Huffington Post, December 5, 2012. Accessed November 20, 2014. http://www.huffingtonpost.com/2012/12/05/darden-restaurants-full-time_n_2246515.html.

149 Algretto et al. “Fast Food, Poverty Wages: The Public Cost of Low-Wage Jobs in the Fast-Food Industry.” UC Berkeley Labor Center, October 15, 2013. http://laborcenter.berkeley.edu/publiccosts/fastfoodpovertywages.shtml.

150 Kurtz, Annalyn. “Subway leads fast food industry in underpaying workers.” CNNMoney, May 1, 2014. Accessed October 27, 2014. http://money.cnn.com/2014/05/01/news/economy/subway-labor-violations/.

151 Kurtz, Annalyn. “Subway leads fast food industry in underpaying workers.” CNNMoney, May 1, 2014. Accessed October 27, 2014. http://money.cnn.com/2014/05/01/news/economy/subway-labor-violations/. 152 Kurtz, Annalyn. “Subway leads fast food industry in underpaying workers.” CNNMoney, May 1, 2014. Accessed October 27, 2014. http://money.cnn.com/2014/05/01/news/economy/subway-labor-violations/. 153 Choi, Candice. “Darden Restaurants Says It Won't Bump Full-Time Workers To Part-Time Status After Negative Publicity.” Huffington Post, December 5, 2012. Accessed November 20, 2014. http://www.huffingtonpost.com/2012/12/05/darden-restaurants-full-time_n_2246515.html. 154 Greenhouse, Steven. “Wage Strikes Planned at Fast-Food Outlets.” The New York Times, December 1, 2013. Accessed December 30, 2013. http://www.nytimes.com/2013/12/02/business/economy/wage-strikes-planned-at-fast-food-outlets-in-100-cities.html?_r=1&. 155 Darden Restaurants. FY2013 Form 10-K for the Fiscal Year Ending May 24, 2014 (filed July 18, 2014).

156 “Chipotle Mexican: Employee Files Overtime Class Action.” SunStreamNews. November 21, 2012. 157 Fox, Emily Jane. “McDonald's workers sue for wage theft.” CNNMoney, March 14, 2014. Accessed October 27, 2014. http://money.cnn.com/2014/03/13/news/companies/mcdonalds-wage-theft-class-action/?iid=EL.

158 Yum! Brands 2014. Corporate Social Responsibility. http://www.yumcsr.com/environment/water-conservation.asp.

159 Kalinowski, Bob. “Feds investigating McDonald's franchise over payroll debit cards” The Times-Tribune, June 23, 2013. Accessed December 30, 2013. http://thetimes-tribune.com/news/feds-investigating-mcdonald-s-franchise-over-payroll-debit-cards-1.1509690.

160 Sun, Justin and Kate Walsh. “Implementing Human Resource Innovations: Three Success Stories from the Service Industry.” Cornell Hospitality Report, Vol. 11, No. 4, February 2011.

161 Covert, Bryce. “New York City Domino’s Workers Win $1.3 Million In Settlement Over Low Wages.” Think Progress, February 3, 2014. Accessed October 28, 2014. http://thinkprogress.org/economy/2014/02/03/3238331/dominos-wages-settlement/; Kurtz, Annalyn. “Subway leads fast food industry in underpaying workers.” CNNMoney, May 1, 2014. Accessed October 27, 2014. http://money.cnn.com/2014/05/01/news/economy/subway-labor-violations/; Greenhouse, Steven. “Domino’s Delivery Workers Settle Suit for $1.3 Million.” The New York Times, January 31, 2014. Accessed October 28, 2014. http://www.nytimes.com/2014/02/01/nyregion/dominos-franchise-settles-delivery-workers-lawsuit-for-1-28-million.html?_r=0.

162 Moore, Paula. Denver Business Journal, "Chipotle supports continued employee development." Last modified November 18, 2011. Accessed February 4, 2014. http://www.bizjournals.com/denver/print-edition/2011/11/18/chipotle-supports-continued-employee.html?page=all.

163 "Start Your Career Rolling." Chipotle. Accessed February 4, 2014. http://careers.chipotle.com/en-us/careers/get_rolling/get_rolling.aspx.

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164 “Enterprise Zones (EZs).” Good Jobs First, Accessed November 20, 2014. http://www.goodjobsfirst.org/accountable-development/enterprise-zones. 165 “DOLLAR FOR DOLLAR: CALIFORNIA’S ENTERPRISE ZONE PROGRAM FALLS SHORT.” California Budget Project, Budget Brief, June 2013. Accessed November 20, 2014. http://www.cbp.org/pdfs/2013/130606_Enterprise_Zones.pdf.

166 Tora, Miguel Sola and Yoona Ha. "California Eliminating 'Wasteful' Enterprise Zones." San Francisco Bay Area News, July 1, 2013. Accessed February 18, 2014. http://sfpublicpress.org/news/2013-07/california-eliminating-wasteful-enterprise-zones. 167 “DOLLAR FOR DOLLAR: CALIFORNIA’S ENTERPRISE ZONE PROGRAM FALLS SHORT.” California Budget Project, Budget Brief, June 2013. Accessed November 20, 2014. http://www.cbp.org/pdfs/2013/130606_Enterprise_Zones.pdf. 168 “State Enterprise Zone (EZ) Tax Credits and Incentives.” San Francisco Office of Economic and Workforce Development. Accessed November 20, 2014. http://oewd.org/Enterprise-Zone.aspx. 169 “Phasing Out Certain Antibiotic Use in Farm Animals.” US Food and Drug Administration. December 11, 2013. Accessed February 7, 2014. http://www.fda.gov/ForConsumers/ConsumerUpdates/ucm378100.htm. 170 Elgin, Ben and Andrew Martin. “FDA Crackdown on Antibiotics Relies on Unproven Steps.” Bloomberg News, January 2, 2014. Accessed February 7, 2014. http://www.bloomberg.com/news/2014-01-03/fda-crackdown-on-antibiotics-relies-on-unproven-steps.html. 171 “Restricting Antibiotic Use.” McDonald’s. Accessed February 7, 2014. http://www.aboutmcdonalds.com/mcd/sustainability/library/policies_programs/sustainable_supply_chain/product_safety/antibiotics.html.

172 O’Mahony, Jennifer. “McDonald's app reveals cow your burger came from in transparency drive.” The Telegraph, June 17, 2013. Accessed October 31, 2014. http://www.telegraph.co.uk/technology/news/10124730/McDonalds-app-reveals-cow-your-burger-came-from-in-transparency-drive.html.

173 Associated Press. “McDonald's Fish McBites and Filet-O-Fish Get 'sustainable' Label.” The Christian Science Monitor, January 25, 2013. Accessed December 30, 2013. http://www.csmonitor.com/Business/Latest-News-Wires/2013/0125/McDonald-s-Fish-McBites-and-Filet-O-Fish-get-sustainable-label.

174 Vittorio, Andrea. “McDonald's to Use Region-Specific Standards To Buy Sustainable Beef.” Bloomberg, May 22, 2014. Accessed October 31, 2014. http://www.bloomberg.com/news/2014-05-22/mcdonald-s-to-let-restaurants-buy-their-own-sustainable-beef.html. 175 Perez, Marvin. “McDonald's Invests $6.5 Million in Sustainable Guatemala Coffee.” Bloomberg News, March 4, 2013. Accessed December 30, 2013. http://www.bloomberg.com/news/2013-03-04/mcdonald-s-invests-6-5-million-in-sustainable-guatemala-coffee.html. 176 “Starbucks Ethical Coffee Sourcing and Farmer Support.” Conservation International. March 2012

http://www.conservation.org/global/celb/Documents/Starbucks_Ethical_Sourcing_Factsheet_2008_2010.pdf. 177 "Starbucks Expands $70m Sourcing Program." Environmental Leader, March 20, 2013. Accessed December 30, 2013. http://www.environmentalleader.com/2013/03/20/starbucks-expands-70m-sourcing-program/.

178 “Shareholder Resolutions.” Ceres. Accessed December 30, 2013. http://www.ceres.org/investor-network/resolutions.

179 “Raising More Fish to Meet Rising Demand.” The World Bank, February 5, 2014. Accessed November 2, 2014. http://www.worldbank.org/en/news/feature/2014/02/05/raising-more-fish-to-meet-rising-demand.

180 Darden Sustainability. Seafood Stewardship. Fisheries. Accessed November 2, 2014. http://www.darden.com/sustainability/default.aspx?lang=en&page=plate&section=seafood-stewardship. 181 Fahy, William. “Consumer Concerns over Chicken Safety in China Continue to Hurt Yum! Brands’ Earnings.” Moody’s Investor Service, October 14, 2013. 182 "Yum Brands Reports Full Year EPS." Yum Brands. Last modified February 03, 2014. Accessed February 4, 2014. http://phx.corporate-ir.net/phoenix.zhtml?c=117941&p=irol-newsArticle&ID=1896381&highlight=.

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183 Jargon, Julie. “Yum Pledges KFC Marketing Push in China.” The Wall Street Journal, December 4, 2013. Accessed December 30, 2013. http://online.wsj.com/news/articles/SB10001424052702304451904579238073910948350.

184 Yum! Brands. FY2013 Form 10-K for the Fiscal Year Ending December 28, 2013 (filed February 18, 2014). 185 Lappe, Anna. “Wendy's, What Are You Waiting For?: Calling on the Fast Food Giant to Stand up For Farmworkers.” The Huffington Post, May 17, 2013. Accessed February 18, 2014. http://www.huffingtonpost.com/anna-lappe/wendys-farmworkers_b_3294769.html. 186 Chipotle Mexican Grill, Inc. FY2012 Form 10-K for the Fiscal Year Ending December 31, 2012 (filed February 8, 2013). 187 Chipotle Mexican Grill, Inc. FY2012 Form 10-K for the Fiscal Year Ending December 31, 2012 (filed February 8, 2013).

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iI N D U S T RY B R I E F | R E S TA U R A N T S

APPENDIX I: Five Representative Restaurants CompaniesVII

COMPANY NAME (TICKER SYMBOL)

McDonald’s Corporation (MCD)

Starbucks Corporation (SBUX)

Yum! Brands, Inc. (YUM)

Darden Restaurants, Inc. (DRI)

Bloomin’ Brands, Inc. (BLMN)

VII This list includes five companies representative of the Restaurants industry and its activities. This includes only companies for which the Restaurants industry is the primary industry, companies that are U.S.-listed but are not primarily traded Over-the-Counter, and for which at least 20 percent of revenue is generated by activities in this industry, according to the latest information available on Bloomberg Professional Services. Retrieved on September 30, 2014.

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APPENDIX IIA: Evidence for Sustainability Disclosure Topics

Sustainability Disclosure Topics

EVIDENCE OF INTERESTEVIDENCE OF

FINANCIAL IMPACTFORWARD-LOOKING IMPACT

HM (1-100)

IWGsEI

Revenue & Cost

Asset & Liabilities

Cost of Capital

EFIProbability & Magnitude

Exter- nalities

FLI% Priority

Energy & Water Managament 43 71 5 Medium • • Medium • Yes

Food & Packaging Waste Management

35 64 6 Medium • • Medium • Yes

Food Safety 67* 100 1 High • • • High No

Nutritional Content 83* 79 4 High • • High • • Yes

Fair Labor Practices 60* 93 3 High • • High • Yes

Supply Chain Management & Food Sourcing

60* 93 2 High • • High • Yes

HM: Heat Map, a score out of 100 indicating the relative importance of the topic among SASB’s initial list of 43 generic sustainability issues; asterisks indicate “top issues.” The score is based on the frequency of relevant keywords in documents (i.e., 10-Ks, 20-Fs, shareholder resolutions, legal news, news articles, and corporate sustainability reports) that are available on the Bloomberg terminal for the industry’s publicly-listed companies; issues for which keyword frequency is in the top quartile are “top issues.”

IWGs: SASB Industry Working Groups

%: The percentage of IWG participants that found the disclosure topic to likely constitute material information for companies in the industry. (-) denotes that the issue was added after the IWG was convened.

Priority: Average ranking of the issue in terms of importance. One denotes the most important issue. (-) denotes that the issue was added after the IWG was convened.

EI: Evidence of Interest, a subjective assessment based on quantitative and qualitative findings.

EFI: Evidence of Financial Impact, a subjective assessment based on quantitative and qualitative findings.

FLI: Forward Looking Impact, a subjective assessment on the presence of a material forward-looking impact.

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APPENDIX IIB: Evidence of Financial Impact for Sustainability Disclosure Topics

Evidence of

Financial Impact

REVENUE & EXPENSES ASSETS & LIABILITIES RISK PROFILE

Revenue Operating Expenses Non-operating Expenses Assets Liabilities

Cost of Capital

Industry Divestment

RiskMarket Share New Markets Pricing Power

Cost of Revenue

R&D CapExExtra-

ordinary Expenses

Tangible Assets

Intangible Assets

Contingent Liabilities & Provisions

Pension & Other

Liabilities

Energy & Water Management • •

•

Food & Packaging Waste Management

• • •

Food Safety • • • • •

Nutritional Content • • • • •

Fair Labor Practices • • • • •

Supply Chain Management & Food Sourcing

• • •

HIGH IMPACTMEDIUM IMPACT

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APPENDIX III: Sustainability Accounting Metrics | Restaurants

TOPIC ACCOUNTING METRIC CATEGORYUNIT OF MEASURE

CODE

Energy & Water Management

Total energy consumed, percentage grid electricity, percentage renewable

Quantitative Gigajoules (GJ), Percentage (%)

SV0203-01

Total water withdrawn, percentage in regions with High or Extremely High Baseline Water Stress

Quantitative Cubic meters (m3), Percentage (%)

SV0203-02

Food & Packaging Waste Management

Amount of waste, percentage food waste, percentage diverted

Quantitative Metric tons (t), Percentage (%)

SV0203-03

Total weight of packaging, percentage made from recycled or renewable materials, percentage that is recyclable or compostable

Quantitative Metric tons (t), Percentage (%)

SV0203-04

Food Safety

Percentage of restaurants inspected by a food safety oversight body, percentage receiving critical violations

Quantitative Percentage (%) SV0203-05

Number of recalls, total amount of food product recalled*

Quantitative Number, Metric tons (t)

SV0203-06

Number of confirmed foodborne illness outbreaks, percentage resulting in CDC investigation**

Quantitative Number, Percentage (%)

SV0203-07

Nutritional Content

Percentage of meal options consistent with the Dietary Guidelines for Americans or foreign equivalent, sales from these options

Quantitative Percentage (%), U.S. Dollars ($)

SV0203-08

Percentage of children’s meal options consistent with national dietary guidelines for children or foreign equivalent, sales from these options

Quantitative Percentage (%), U.S. Dollars ($)

SV0203-09

Number of child advertising impressions made, percentage promoting products that meet national dietary guidelines for children or foreign equivalent

Quantitative Number, Percentage (%)

SV0203-10

*Note to SV0203-06 – Disclosure shall include a description of notable recalls and corrective actions implemented in response to events.

**Note to SV0203-07 –The registrant shall discuss foodborne illness outbreaks that were investigated by the CDC and corrective actions implemented in response to events.

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APPENDIX III: Sustainability Accounting Metrics | Restaurants (cont.)

TOPIC ACCOUNTING METRIC CATEGORYUNIT OF MEASURE

CODE

Fair Labor Practices

1) Voluntary and (2) involuntary employee turnover rate for restaurant employees

Quantitative Percentage (%) SV0203-11

Average hourly wage for restaurant employees, by region; percentage of employees earning minimum wage

Quantitative U.S. Dollars ($), Percentage (%)

SV0203-12

Amount of legal and regulatory fines and settlements associated with labor law violations*

Quantitative U.S. Dollars ($) SV0203-13

Amount of tax credit received for hiring through enterprise zone programs

Quantitative U.S. Dollars ($) SV0203-14

Supply Chain Management & Food Sourcing

Percentage of food purchased that meets environmental and social sourcing standards, percentage third-party certified

Quantitative Percentage (%) by cost of goods sold

SV0203-15

(1) Percentage of eggs purchased from cage-free sources and (2) percentage of pork purchased from gestation crate-free sources1**

Quantitative Percentage (%), Percentage by weight (%)

SV0203-16

Discussion of strategy to manage environmental and social risks within the supply chain

Quantitative Discussion and Analysis

SV0203-17

*Note to SV0203-13 – Disclosure shall include a description of fines and settlements and corrective actions implemented in response to events.

** Note to SV0203-16 - Disclosure shall include a description of any additional animal welfare standards used by the registrant.

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APPENDIX IV: Analysis of SEC Disclosures | Restaurants

The following graph demonstrates an aggregate assessment of how representative U.S.-listed Restaurant companies are currently reporting on sustainability topics in their SEC annual filings.

Restaurants

Energy & Water Management

Food & Packaging Waste Managment

Food Safety

Nutritional Content

Fair Labor Practices

Supply Chain Management & Food Sourcing

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

TYPE OF DISCLOSURE ON SUSTAINABILITY TOPICS

NO DISCLOSURE BOILERPLATE INDUSTRY-SPECIF IC METRICS

71%

64%

100%

79%

93%

93%

IWG Feedback*

*Percentage of IWG participants that agreed topic was likely to constitute material information for companies in the industry.

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